The Impact of Portfolio Diversification Strategy on Corporate Financial Performance: A Financial Management Analysis Approach

Abstract

This study investigates the impact of portfolio diversification strategies on the financial performance of publicly listed companies on the Indonesia Stock Exchange (IDX). Using a quantitative analysis approach, the research examines key financial indicators such as Return on Assets (ROA), Return on Equity (ROE), and Profit Margin across a sample of 100 diversified and non-diversified firms over a five-year period. The findings reveal a positive correlation between diversification and financial stability, with diversified companies demonstrating higher ROA, ROE, and more stable profit margins than their non-diversified counterparts. Sectoral and geographic diversification both contribute to reducing the risks associated with market volatility, enhancing financial resilience. These results support Portfolio Theory by highlighting diversification as an effective risk management tool that strengthens corporate financial performance. The study provides practical insights for corporate decision-makers in emerging markets, advocating for diversification as a strategy to achieve long-term financial stability. Future research may explore barriers to diversification and the role of digital tools in optimizing diversified portfolios in volatile environments.