Based on 2002-2004's listed companies in Shanghai Stock Exchange,this paper empirically investigates the effect of the diversification oncorporate performance. First, we measure corporate diversification usingthree different approaches. Each approach shows the same phenomenonthat, during 2002-2004, diversification is deepening. Using Tobin's Q,we find that corporate performance is deteriorating. Either diversifiedfirms or non-diversified firms, their Q is decreasing. Comparing thedifferent level of diversification, the Q of diversified firms is larger thanspecialized firms. To further examine the value effect of diversification,we use fixed effect model based on panel data. The regressive resultsshow that diversification has significantly negative effect on corporateperformance. Furthermore, ownership structure, financial leverage,corporate size and so on also have significant effect on performance. |