Effects of corporate diversification on firm performance: evidence from the Serbian insurance industry

The aim of this paper is to provide empirical evidence on the relation between line-of-business diversification and performance for the insurance companies that operated in the republic of Serbia in the period 2004–2014. The research results show that the relation between risk-adjusted returns measured both by return on assets and return on equity and line-of-business diversification and performance measured by entropy is significant and positive, which means that diversified insurers outperform undiversified insurers. These results could be useful in decision making for insurance companies as they suggest the need for diversification (specialisation), growth in size, capitalization and affiliation (grouping).