Effects of corporate diversification on firm performance: evidence from the Serbian insurance industry

Abstract

The aim of this paper is to provide empirical evidence on the relation between line-of-business diversification and performance for the insurance companies that operated in the republic of Serbia in the period [2004][2005][2006][2007][2008][2009][2010][2011][2012][2013][2014]. The research results show that the relation between risk-adjusted returns measured both by return on assets and return on equity and line-of-business diversification and performance measured by entropy is significant and positive, which means that diversified insurers outperform undiversified insurers. These results could be useful in decision making for insurance companies as they suggest the need for diversification (specialisation), growth in size, capitalization and affiliation (grouping).

Foreign Diversification and Performance of Quoted Deposit Money Banks in Selected Sub-Sahara African Countries

“…Deposit money banks now operates in shores outside their original domicile in order to extend their services to other climes and by so doing having wider coverage and increasing their returns. Corporate diversification and performance of deposit money banks has been largely explored from diverse methodologies such as correlation, anova, ordinary least squares simple and multiple regression analysis, panel regression analysis, data envelopment analysis and Hirschman Herfindahl index (Ojo, 2011;Ugwuanyi, & Ugwu, 2012;Turkmen & Yigit, 2012;Brighi & Venturelli, 2013;Wei, Zhang, & Shi, 2013;Meysam & Shavazipour, 2013;Mulwa, Tarus & Kosgei, 2015;Berg, 2016;Krivokapic, Njegomir &Stojic, 2017). These methods are largely part of conventional techniques.…”

Product Diversification as a Performance Boosting Strategy? Drivers and Impact of Diversification Strategies in the Property-Liability Insurance Industry

“…The authors find a positive relationship between product diversification and (risk-adjusted) performance. LikeShi et al (2016),Krivokapic et al (2017) also find evidence for a positive relationship between line-of-business diversification and (risk-adjusted) performance for Serbian non-life insurance companies. That is, diversified insurers thus outperform undiversified insurers.…”

“…(2010), Pavić and Pervan 2010, Shi et al (2016) and Krivokapic et al (2017). 14 Starting with Elango et al (2008), their study investigates the relationship between product diversification and financial performance for the US P&L insurance industry over the period 1994-2002.…”

Effect of Ownership Structure on Corporate Diversification of Listed Firms in Kenya

“…Foreign ownership, on the other hand, was determined using the percentage of shares owned by foreign investors (Ongore, 2011); (Hintošová & Kubíková, 2016). Borrowing from studies as by (Akpinar & Yigit, 2016), (Krivokapic et al, 2017) and (Phung & Mishra, 2016), Jacquemin and Berry's Entropy measure was used as an indicator of corporate diversification. Capital structure is the mix of debt and equity which is utilized in financing the firm's operations (Modigliani & Miller, 1958).…”

“…Singling out (Rumelt, 1974) and (Rumelt, 1982), diversification aids firm in entering new markets or product lines which are different from existing ones. Through diversification, firm enhances its market power, efficiently utilize its resources (Montgomery, 1994) and heighten performance (Krivokapic, Njegomir, & Stojic, 2017) as well as investment opportunities (Pawaskar, 1999). However, from an agency theory perspective, agents and principals are opportunists who seek to maximize their own needs in a firm (Jensen & Meckling, 1976).…”