Capital Structure, Diversification Strategy And Firm Performance

The relationship of capital structure, diversification strategy and performance is analyzed in this dissertation. Subsequently, an empirical test is done used the data form the manufacturing listed companies on Shanghai stock exchange (SSE). The author investigates how the diversification strategy impacts on the capital structure, how the directly investing mode and acquisition mode influence on financing preference, how the capital structure and diversification strategy impact on performance and whether the internal capital market of diversification company is efficient.This study shows that the diversification is an important element which positively influences on the capital structure. The debt leverage of the diversification company is higher than the single business company. Increasing the degree of diversification, the debt financing capacity of company is increased.The empirical test demonstrates that the degree of competition will moderate the positive impact of diversification on debt leverage. Decreasing the degree of competition, there exist greater relationship between diversification and debt leverage. Increasing the degree of competition, the diversification will less positive impact on debt leverage, even changes to negative influence. The result implicates that diversification strategy should match the degree of competition. Increasing the degree of diversification will help a company to increase its debt financing capacity. But facing fierce competition, increasing the degree of related diversification but not unrelated diversification maybe is a reasonable way to increase company's debt financing capacity.This study shows that a company which exercises acquisition mode to implement diversification strategy shows preference for exogenous financing, but a company which exercises directly investing mode to implement diversification strategy shows preference for endogenous financing. The result implicates that the entry mode for practicing diversification strategy should match the financing mode. Acquisition mode matching exogenous financing or directly investing mode matching endogenous financing for practicing diversification will help a company to decrease its financing cost.This study shows that the managerial ownership and the outsider directors are irrelevant to capital structure and the ownership of control shareholder is negative to debt leverage. It suggests that the insufficient incentive of manager and equity financing preference of control shareholder are still existent and institution of outsider directors, which has not exert efficiently monitoring, should be improved.This study demonstrates that diversification is a key element to influence on the performance and increasing the degree of diversification, the performance is increased, but the internal capital markets of Chinese listed companies which take practice to diversification strategy are really not used efficiently.The empirical test demonstrates that the debt leverage is irrelevant to performance, but diversification strategy will moderate impact debt leverage on performance. Increasing the degree of diversification, the debt leverage will less negative influence on performance and change to greater positive influence. The result suggests the degree of diversification should match the capital structure. Low debt leverage matching low degree of diversification or high debt leverage matching high degree of diversification will help a company improve its performance. In some sense, it is reasonable that the Chinese listed companies have been keeping low debt leverage. The reason is that the listed companies try to consist with low diversification and to improve performance.