Abstract:
Businesses in Sri Lanka experienced decreased performance as a direct result of the
COVID-19 pandemic. This study is conducted to determine the effect that
diversification strategies have on the overall performance of DIMO PLC, the largest
automotive company in Sri Lanka pre and during the pandemic. It was found that the
entropy index of related and unrelated diversification strategies had a perfect
relationship with the company's accounting-based performance (ROA and ROE) and
market-based performance (Tobin's Q) during the period 2012 to 2021, inclusive of
the COVID-19 period starting in 2019. This was discovered after DIMO PLC had
been expanding its operations into other alternative business sectors for several
years. The unrelated diversification strategies implemented by DIMO PLC have
positively exaggerated the company's performance while simultaneously
maintaining the unexpected results that the COVID-19 pandemic has produced.
According to DIMO PLC findings, there is a positive association between unrelated
diversification and financial performance. Possible explanations include the ability
to back up and justify the capital expenditure required for diversity, political
connections in an emerging economy, and investor expectations, who view corporate
diversification as a productive management activity. Furthermore, a negative link
between firm size and performance was discovered. According to the findings of the
VECM analysis, DIMO PLC results revealed that unrelated diversity is positively
related to company long-run performance, whereas related diversification is
negatively related to firm long-run performance. DIMO PLC is generally
acknowledged as an automobile industry specialist and implements relevant
diversification techniques. Despite the effects of the Covid-19 pandemic and import
limitations, the company has been able to sustain stable overall performance.
According to the study's findings, DIMO PLC may be able to achieve its objectives
by overcoming unexpected challenges with efficient strategies such as testing their operations into seemingly unrelated diversification strategies such as the
agricultural, biomedical, construction, and material handling industries. Finally, it
is suggested that diversification would have both positive and negative effects on
firm performance and that businesses should prioritize developing appropriate
approaches in order to effectively face challenges.
