Diversification And Corporate Value: Empirical Test Based On Chinese Listed Companies From 2000 To 2005

Diversification discount has been the subject of an active debate in corporate finance during the past few years. Western scholars have the deep interest in this topic and have formed quantities of academic results. According to their research, diversification will have a negative effect on corporate value, so they should choose to specialization.This paper chooses the Chinese listed firms over the 2000– 2005 periods as the sample firms and Tobin's q as the measure of financial performance. We do the empirical test to the relation between the diversification and corporate value. We estimate a premium of about 1%.The corporate value of firms that do business in related industries is better than the firms in unrelated industries. After controlling for corporate size, leverage, ownership and so on, the calculated diversification premium still stands. Additionally, based on a robustness check, we find that benefits from diversification of corporations should consider industry in which firms operate. Generally speaking, our estimated premium corresponds to those conclusions of scholars in Asian countries in the previous literature while challenge the general results of developed countries.