Study On The Factors Affecting Firm Diversification Of Chinese Listed Companies

Diversification is a widespread phenomenon across the world. The existing scholars concentrate on the economic consequences of diversification, namely diversification discount and diversification premium. In this paper, factors affecting diversification behavior of domestic listed corporation are explored in order to improve the efficiency of diversification on the basis of the initial motive.In this paper, both internal and external factors of diversification behavior are researched through the theoretical analysis and empirical study. That is, firm performance is regarded as the important internal factor besides the stockholder's rights structure, the capital structure, and the scale of board of directors. In addition, the industry factor is also considered. Firstly, the theory hypotheses are put forward on the basis of the diversification motive theory, corporate governance theory and the mechanism how corporate governance influences diversification. Then, empirical study is made by using correlation analysis, nonparametric test, OLS multi-linear regression analysis and multinomial logistic regression according to the data of 588 listed companies in 2004-2006 from Shanghai stock and Shenzhen stock. Finally, the theory hypotheses are validated with the results showing that: (1) As a whole, there is significant negative correlation between the stockholder's right centralization degree and diversification level. (2) There is significant negative correlation between the stock proportion held by super management board and diversification level. Specially, for the diversification companies, the higher stock proportion held by super management board, the more likely choose low diversification level. But there is no significant preference for the determination that whether the company would choose diversification. (3) As a whole, the larger scale of board of directors, the lower diversification level. (4) As a whole, there is significant positive correlation between the liability/asset ratio and diversification level. And companies with high liability/asset ratio will more likely choose diversification. But there is no significant preference for low diversification level and mid-high level. (5) As a whole, there is significant negative correlation between firm performance and diversification level. (6) As a whole, industry factor affects diversification level. Specially, there is no significant difference in the diversification level among industry A,K,L,M, because all of them belong to high level diversification industry. In conclusion, according to the above findings, suggestions of analyzing company's internal and external condition before diversification and improving corporate governance when company choose diversification are brought up to make diversification more efficient.