Diversification And Firm Performance: An Empirical Analysis Based On Publicly Listed Firms In China

The effect of diversification on firm performance is a hot concern in both theory and practice. By choosing 926 listed companies and collecting the related data from stock market, this dissertation built the database on diversification, and conducted multi-variable regression analysis on the relation between diversification and firm performance. We found: diversification has positive influence on firm market performance, and has no significant influence on financial performance; choosing proper degree of diversification could improve firm market performance. Furthermore, this dissertation analyzes the motivation of diversification. We found: industry and shareholding structure variables are manifestly significant against firm diversification, inner capital market show negative influence, which is contrary to the theoretical expectation. Shareholding of management and shared resource didn't influence diversification significantly. Finally, we find that diversification, as an operation strategy is endogenous, i.e. diversification and firm performance affect each other mutually. Based on the above empirical analysis, this dissertation indicates: in China, diversification usually is taken as a means to pursuing benefit, but not a long-term development strategy. So, such positive effect is superficial. We advise firms need stand on key business, further consummate the corporate governance and shareholding structure, and foster ICM, to make diversification play the role efficiently.