An Empirical Research On The Relationship Between Diversification Strategy And Performance Of The Listed Companies In China

It is crucial for companies to select a proper development mode in competitive market. Diversification has been one of the most popular development modes that companies all over the world pursued since 1960's. The relationship between diversification and performance is also an important subject for the research in strategic management. This paper examines the performance of China listed companies and designs the measure index system of diversification strategy and Operating performance. Moreover, it adopts empirical study on the relationship between them through the approaches such as regression model, variance analysis. It attempts to seek for the diversification development model fit for China so as to enhance operating performance. The main content of this paper is as follows:The first chapter elaborates the background and significance of the thesis and specifies the objective and methods of the analysis.The second chapter makes a review of the current classic theoretical models and research conclusions about diversification both theoretically and empirically. It first elaborates the definition of diversification, and then reviews the relevant research methods and conclusions about the relationship between diversification and performance, and at last summarizes the relevant research on the endogeneity of diversification.The third chapter discusses the causal relationship between diversification and performance theoretically. It describes the positive and negative impact that diversification has on performance and the endogenous characters of diversification and the elements generated by these characters, which, therefore, build the theoretical foundation for the following empirical research.The fourth chapter proposes the hypothesis of the research, chooses the sample, defines the variables and constructs the empirical research model, based on the research of the first three chapters.The fifth chapter processes the collected data and tests the proposed hypothesis and analyzes the results got from the analysis, using the regression model constructed in the fourth chapter. The last chapter summarizes the research of the whole paper, and points out the points that needs to be improved and prospects in the future research.The paper conducts the empirical analysis from three aspects: firstly, it preliminarily verifies the influence that the diversification strategy has on the performance of enterprises regardless of the endogeneity of diversification; secondly, it analyzes the motives for implementing diversification strategy, and constructs the models to test and analyze the impact that the characteristics of enterprises has on enterprises' implementation of diversification strategy, and then prove the existence of the endogeneity of diversification; at last, it analyzes the impact that diversification has on performance, using the instrumental variables and the two-stage model, and compares it with the empirical test in the first step.The paper at last comes to the following conclusions: both diversification and enterprise performance are endogenous variables, they depend on each other simultaneously, and they are not just one-way casually related. The results indicate that regardless of the endogeneity of diversification, diversification has no statistical significant impact on ROA while it has positive significant impact on adjROA. However, the correlation is not necessarily the real relation between the two, as diversification has endogenous characters, it is determined by a series of characteristics of the enterprise, of which the level of enterprise performance, industry attractiveness, the scale and the age of the enterprise all have positive significant impact on the level of diversification, while the development potential and ownership structure have negative significant impact on diversification. Controlling the endogeneity of diversification, the author retests the relationship between diversification and enterprise performance, the results suggest that the relationship between the level of diversification and the two variables are both negatively correlated, that is, the more diversified the enterprise, the worse the performance, which indicates that the problem of diversification depreciation exists in the listed companies in our country.The main innovations of the paper are as follows: as for the research contents, it considers the endogeneity of diversification and analyzes the mutual impact between enterprise performance and diversification, after controlling the endogeneity of diversification, it tests the impact of diversification on operation performance. As for the selection of sample data, the paper uses mixed panel data and selects 911 annual data covering 8 years from 1999 to 2006 of 114 listed companies. The research sample has so far had the largest time span in the current research on diversification in our country, which covers all industries. The research sample has sound representativeness. As for the construction of model, the paper combines the methods of entropy statistics and constructs the indicators of the extent of diversification which are in accordance with the actual situations of the listed companies in our country. Besides, it draws lessons from the instrumental variables and equations used in Canpa and Kedia (2002) 's exploration of the endogeneity of diversified. The author changes the dummy variables into continuous variables to measure diversification, which, to a greater extent, makes the research more scientific.