Study of impact of unrelated product diversification on financial performance of firms in Indian perspective

The present paper analyzes top five diversified firms in terms of revenue that entered into unrelated businesses between FY 2000–01 and FY 2009–10, from each of the top five industries in terms of revenue. The financial performance is measured in terms of liquidity, profitability, efficiency, and solvency risk. Current ratio is used as a measure of liquidity position, Return on Equity (ROE) is used as a measure of profitability, Total Asset Turnover is used as a measure of efficiency, and Debt-to-Equity (D/E) ratio is used as a measure of solvency risk. To study the impact of unrelated diversification on financial performance, average of post-diversification five years value of financial measures are used. This study was conducted on small size of sample. This study could not find any conclusive evidence that unrelated diversification improves liquidity position, profitability, efficiency or solvency risk level of the firms.