The relationship between level of diversification and performance of 70 KLCI companies in Bursa Malaysia / Mazlina Mahmud

This paper examines further in studying the relationship between level of diversification and performance of the companies: A study of top 70 KLCI companies listed in BURSA MALAYSIA. These 70 companies consist of ten industries in Malaysia such as trading and services, industrial product, infrastructure, technology, finance, consumer product, plantation, construction, hotels and properties. Standard Industrial Classification (SIC) codes are used in order to measure the level of diversification of these companies. For each industry group, firms were classified as "less diversified" or "more diversified" based on the four digits SIC codes they were operating in. The term of "less diversified" means the firm was operating broadly within the industry and have same most significant digit SIC code. While the term of "more diversified" refer to the company which operating across industries and have different most significant digit SIC code. Most strategy planning is done by managers based on expected future returns measured by parameters like ROA, ROI and ROE. In order to determine the company's performance, these three parameters (ROA, ROI and ROE) will be use in this extensive research. After that, average return (AR) will be calculated by averaging return on asset (ROA), return on investment (ROI) and return on equity (ROE). The level of diversification affect the performance of company into which industry their operating in. It is very important in this study to determine the level of diversification of each single company and also determine nature of their business.