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Diversification Theory And Influencing Factors Of Chinese Listed Companies Diversification

Posted on:2006-09-13Degree:DoctorType:Dissertation
Country:ChinaCandidate:R J PanFull Text:PDF
GTID:1116360155460694Subject:Western economics
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Since American firms began to choose the strategy of diversification in 1920s, diversification has been a widespread phenomenon across the world, meanwhile, which is still a very hot subject with a long history attracting many scholars. Researchers of strategic management, industrial organization and corporate finance analyze the motive of diversification, as well as the effect of diversification on firm performance.Compared with American modern enterprise's more than one hundred year's history, there is a just twenty years' history of "real" firms in china. During the era of the plan economy, most enterprises are state-owned or collective. These firms operated under the direct and strict supervision of government, thus diversification was not among the set of operation strategy of these firms. But since the policy of reform and opening to the outside world, more and more operation authorities have been delegated to the state-owned firms. Besides, as the inflow of foreign investment and rapid development of village and township enterprises and private enterprises, the competition among enterprise intensified. Diversification has become a feasible strategy. At the present time, firm diversification is very popular in china.From the mid of the 1990s, researchers began to pay their attention to the diversification of public companies of china. But because of shortage of data, until now, very few studies on diversification of china public companies are available using widely accepted methodology. Furthermore, these very few studies mainly focus on the empirical test of the effect of diversification on firm performance following the foreign mainstream paradigm in the 1990s.Based on the review of the origin of firm diversification in light of history and foreign literature of firm diversification, this dissertation is to study the extent to which china public companies diversify and factors affecting firm diversification.The dissertation is organized as follows.The first part includes chapter one. The part reviews the origin of firm diversification in American history. In chapter one, firstly, upon the review of the evolution of the concept of diversification, we conclude firm diversification generally refers to production diversification of a certain specific enterprise. Then the evolution history of modern enterprises, their diversification, and merge & acquisition waves inAmerica are reviewed according to the research of the rise of modern business enterprises and salaried executives by Chandler (1977).The second part includes chapter two and three. The part systematically reviews the foreign literature of firm diversification.Chapter two reviews the foreign theoretical literature of firm diversification from the point of view of diversification motive. Some studies associated with diversification motive analyze the reason of diversification from the approaches of market power, fully using of resource, principal-agent etc. and argues the operation of diversified firms is fundamentally different from that of focused firms. In contrast, some studies analyze the diversification motive just in light of the theory of corporate finance, such as debt capacity, internal capital market regardless of firms' operation. At the same time, some scholars put forward some hypotheses about the diversification motive, such as improving earning per share; seeking a new growing pole, tax saving, risk spreading.Chapter three reviews the foreign empirical literature of firm diversification. First of all, chapter three gives a detailed introduction of measurement of diversification and firm performance in the foreign empirical studies, and analyzes the advantages and disadvantage of each measurement system. Then, the studies of the effects of diversification on firm performance are divided into three stages in terms of their methodologies and conclusions, and the studies in each stage are commented. In the end, the empirical tests of diversification motive are summarized. As a whole, the empirical studies support the hypotheses of debt capability, defence and agent private benefits.The third part includes chapter four and five. This part gives a descriptive statistics of china public companies, thereafter; an empirical study is done to test some hypotheses.Base on the review of literature associated with china public companies, the extent to which public companies diversify are studied respectively in 2002 and 2003 by using industry number of one-digit code and primary product specialization rate of income from key businesses. Then, the degree of diversification are evaluated respectively in light of different industries, ratio of negotiable shares, ratio of sate-owned shares(excluding related diversified firms) ,and earning ability, leverage rate, Price/Earnings Ratio of public firms with different diversification degrees are compared. The analysis implies diversification as a strategy is endogenous.Diversification degree of china public companies is closely correlated with variables of industry, ratio of negotiable shares, ratio of state-owned shares, etc.Chapter five gives a brief analysis of factors affecting diversification such as ratio of negotiable shares, ratio of state-owned shares, earning ability, technology, improving debt ability, and suggests six hypotheses. The above hypotheses are tested by using the Logit regression model and multi-variable linear regression model. The effect of factors affecting firms' diversification on whether a listed company will diversify is tested using Logit model; on the on the other hand, the effect of these factors on the degree of diversification of diversified firms is tested using multi-variable linear regression model. The main results are as follows.1. Industry variable is manifestly significant against firm diversification. It is not only a factor determining whether a listed firm will choose to diversify but also a factor the extent to which a listed firm will diversify.2. After controlling the variables of industry and firm scale, the ratio of negotiable shares is also significant against firm diversification, i.e. listed firms with a high ratio of negotiable shares incline to choose a strategy of diversification, furthermore the higher a diversified firm's ratio of negotiable shares is, the higher it diversifies.3. After controlling the variables of industry and firm scale, the ratio of state-owned shares is only significant against whether a listed firm will diversify, and listed companies with a lower ratio of state-owned shares have a higher probability to diversify.4. After controlling the variables of industry and firm scale, a listed firm's technology is only significant against whether it will diversify, and listed companies with low level technology have a higher probability to diversify.5. After controlling the variables of industry and firm scale, the motive of improving debt ability only has significant effects on whether a listed firm will diversify.6. After controlling the variables of industry and firm scale, the income from key businesses of lagged two years only has significant effects on the diversification degree, and listed companies that are relatively profitable have a higher degree of diversification. The above result rejects the hypothesis of defensive strategy about the diversification of china public companies.To sum up, compared with the literature available, the empirical study of this dissertation on...
Keywords/Search Tags:Diversification, Related diversification, Negotiable shares, State-owned shares, Industrial classification
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