Essays On Corporate Diversification: The Motivation And Mechanism

Up to present, there has not been a reasonable explanation about the motivation of corporate diversification and the mechanism of diversification how the diversification influences corporate performance, though strategy of diversification has been studied for 50 years. Many theories, such as Market Power Theory, Decentralizing risk theory, Micro-Market Structure Theory, Economics of Scope theory, Principal-agent theory, Synergetics. Theory and Transaction Cost theory do not explain the phenomenon of diversification exactly.This paper intends to breaking through the paradigm of contemporary study on diversification, and studies the motivation and mechanism of diversification from the nature of the corporations relying on the logic argument and the mathematics deduction method. The objective of this paper is to uncover the enigma of diversification,to clear the explanation of diversification and to offer valuable knowledge for the domestic corporations which want to execute the strategies of diversification.Firstly, this paper attests that the nature of the corporations to exist is to pursue the maximal profit; according to this, this paper testifies that the incentive of all enterprise behavior is to gain profit and the aim of corporate diversification is to gain profit.Furthermore, this paper puts forward four hypotheses of diversification, and then builds the index of return ratio of owners' equity after the risk adjustment and the target function of decision-making of corporate diversification.We show that the motive of diversification is discriminated to recessive and obvious motive on the survey of the corporate evolution from one business to multi-business. On account of the above, this paper concludes that the motive of diversification is to advance return ratio of owners' equity after the risk adjustment or slow the declining velocity of return ratio of owners' equity after the risk adjustment。Finally, this paper educes the condition of the diversification, the mode of the choosing industry, the occasion of diversification and the model of the diversification strategy.