Research On The Comparison Between Diversification-Organization And Refocusing-Organization

Why diversification is bad for some enterprises and good for other? Which strategic is better for the value of the firm? How to choose? All these problems are the focus of the researchers. This paper study the choose behavior of firm between the diversification -organization and the refocusing-organization based on the theory of internal capital markets. Internal capital markets exist in the diversification firm because of the diversification organization. The internal capital markets can be beneficial because they allow manager to transfer funds between businesses without incurring the transact cost of external finance. But the internal capital markets are not perfect. They can be costly because of the agency problems. Under the asymmetric information, manager control more resources the agency problems become more severe. The internal capital markets insulate the manager from the constraints of resource. The author attempts to prove:Whether diversification can add the value of the firm depend on the compare of the benefits from internal capital markets and the costs of the agency problems. To make the effect of internal capital markets clearly, the author develop a model. This article main content includes: Summarized the present research condition;Established the model of firm organize choice based on the internal capital markets theory;Analyzed enterprise's financing and the investment behavior under two kind of different organization forms;Compared with two kind of organization forms under enterprise's value, thus provides the reference to enterprise's choice;From the internal capital markets angle, explained diversification and the enterprise value relations.