How The Corporate Governance Influence The Choice Of Related And Unrelated Diversification

Researches of domestic scholars about diversification are more focused on the relationship between the extent of diversification and the value of corporate. As the data is difficult to get, researches on related and unrelated diversification are less. This paper use 2004——2006 listed companies in China as samples, from the agency view to study how the corporate governance influence the choice of related and unrelated diversification. The degree of related and unrelated diversification is measured by entropy index. We use the One Way ANOVA , Principal component analysis and Multiple Regression as study model. The results showed that the performance of related diversification companies is better than unrelated diversification companies. The relationship between unrelated diversification and performance has significant negative correlation. This paper respectively measure the first major shareholder's shareholding ratio, the proportion of state-owned shares, the percentage of outstanding shares, management shareholding, the chairman and general manager is one person or not, the scale of independent directors how to influence the choice of related and unrelated diversification. The results show that the corporate governance doesn't have a significantly effect on related diversification. Company owners will neither encourage nor inhibit managers to select the related diversification. But corporate governance has a significantly effect on unrelated diversification, especially the first major shareholder. More shareholding of the first major shareholder has, the degree of unrelated diversification is much lower. Besides the first major shareholder, the board structure will also influence the choice of unrelated diversification. When the chairman and general manager is one person, the company is more likely to choose unrelated diversification. The bigger scale of non-independent directors the lower level of unrelated diversification. It proved that improve the corporate governance can avoid managers to choose unrelated diversification to increase the income of private at the cost of the interests of the company. Therefore, companies should constantly improve the corporate governance, thus avoiding the interests of shareholders and company value damage.