The Influence of Portfolio Diversification on Financial Performance: Evidence from Listed Banks on the Ghana Stock Exchange

Abstract

The study examines the influence of portfolio diversification on financial performance: evidence from listed Banks on the Ghana Stock Exchange. The results of this study indicate that the combined impact of the deposit portfolio, the loan portfolio, and the investment portfolio on the financial performance of the banks quoted on the Ghana Stock Exchange is statistically insignificant. Used a descriptive correlational research design and analyzed secondary data of financial statements published during eleven years (2012-2021) through solid statistical methods, including fixed effects and random effects models, together with the Hausman test, which underlines the reliability of these results. The results indicate that the highest deposit levels can harm both the performance of the ROA and the ROE, while increased loan levels have a positive influence on these metrics. On the contrary, investments do not significantly affect ROA, but have a remarkable negative impact on ROE. The study strongly recommends that the management teams of selected banks take proactive measures to ensure that the diversification of their loan portfolios is considered a wise and strategic decision. This approach is not only beneficial; It has the potential to produce a positive and significant impact on its general financial performance.