The Study of the Effect of Diversification of Products on Firm Performance in Tehran Stock Exchange

Abstract

One of the models to predict the expected return on equity is capital asset pricing model, a single factor (CAPM). Because of the shortcomings of this model, three-factor model of Fama and French (1993) was proposed. This model has been tested in some countries.  The main objective of this study was to evaluate the impact of diversification of products on productivity of companies in the Tehran Stock Exchange. For this study, two main sub-hypotheses and a theory were developed by using a statistical comparison of the two communities. The average return in companies with low product variety and diversity of products is highly significant. On the other hand, by using the equations of Fama and French it can be found that every time a variety of product was added to equations (coefficient of determination) and also the confidence equation increased. Thus, the hypothesis that "diversification increases the efficiency of the model and its ability to explain changes" was confirmed. When we examined the regression equations, except for one case, in other cases coefficients SMB were positive.