Thesis (MDevF (Business Management))--University of Stellenbosch, 2010. / ENGLISH ABSTRACT: Portfolio diversification in capital markets is an accepted investment strategy. On the other hand
corporate diversification has drawn many opponents especially agency theorists who argue that
executives must not diversify their firms. Instead, they must pay out the ‘free cash flows’ used to
make acquisitions as dividends so that shareholders can diversify on their own. The
‘conglomerate discount’ of diversified firms in stock markets confirmed this argument and
compelled many firms to refocus by selling-off non-core units from the 1980s. Through a case
study of Zimbabwe Stock Exchange listed Delta Corporation Limited which spun-off its
unrelated subsidiaries to focus on its core cold beverages business in 2001, this thesis
investigates if by refocusing conglomerates improve shareholders’ returns. Using inflation
adjusted share returns and factoring in risk by adopting the Sharpe index, the study results
show that Delta underperformed the market and its peers as a diversified conglomerate but
outperformed both benchmarks after refocusing. The study also argues that market failures in
Zimbabwe, in particularly the foreign exchange and agriculture markets, compelled firms to
divert from their core strategies in order to survive hyperinflation. It concludes by affirming the
consensus in corporate diversification research that conglomerates are an inefficient structure
for growing shareholders’ returns but may indeed be the default corporate strategy in
developing economies frequently marred by market imperfections and failures.
| Identifer | oai:union.ndltd.org:netd.ac.za/oai:union.ndltd.org:sun/oai:scholar.sun.ac.za:10019.1/934 |
| Date | 03 1900 |
| Creators | Mthimkhulu, Affred Mbekezeli |
| Contributors | Adjasi, C. K. D., University of Stellenbosch. Faculty of Economic and Management Sciences. Graduate School of Business. |
| Publisher | Stellenbosch : University of Stellenbosch |
| Source Sets | South African National ETD Portal |
| Language | English |
| Detected Language | English |
| Type | Thesis |
| Format | 68 pages |
| Rights | University of Stellenbosch |
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