An Empirical Research On Diversification Strategy & Firm Performance

Foreign scholars have done many researches on the relationship between diversification and firm performance. Although the conclusions are different and contrary, more and more researchers have found that diversification results in a decrease in value. As the facts shown, in America, Japan and Korea, there is a trend indicating the regression from diversification to specialization. In the late eighties of twentieth century, companies in our country began to make diversiform investment. From the 10- year development of diversifications, we can see that few are successful. Scholars in our country have made a lot of researches on diversification, mostly with the method of normal. Few researches on the relationship between diversification and firm performance have been done with empirical methods. Whether diversification in our country can improve firm performance or does some damage to value? With the aim of solving the question, this thesis firstly analyzes the main idea of relative researches, and then based on it, use some indexes indicating diversification and performance. With a reference to relative researches, this paper chooses 98 listed companies in A stock market and dose an empirical research on the relationship between diversification and performance in our country. The conclusions are as following: (1) There is a negative correlation between diversification and performance index (EPS, ROE, ROA); (2)There is no significant correlation between diversification and the value of company (Tobin Q). The imperfectness of capital market in our country may account for it. According to the result of empirical research, author analyzes the historical background of diversification in our country and the reasons for the negative correlation between diversification and performance. In the last, some policy suggestions are put forward.