Impacts Of Product And Geographic Diversification On Firm Performance

China, as an emerging market, has huge market potential and opportunities. More and more domestic companies, especially big and medium-sized enterprises, tend to make company expansion as their development strategy. It is practical significant to analyze the impact of business diversification and geographic diversification on firm performance, which can unties the puzzle of diversification.On this paper, 139 listed companies, which were controlled by the top 500 of domestic companies from 2002 to 2006, are used as samples to make both dynamic and static analysis in the year of 2002 and 2006.First, based on former research achievements, this paper makes 14 hypotheses on the relationship among product diversification, geographic diversification and firm performance. Then using regression analysis, double-sample mean difference Z-test, double-sample equal variance t-test, double-sample unequal variance t-test, double-sample variance F-test and two related samples test to checkout these hypotheses, we have the following conclusions: (1)The degree of product diversification has a negative correlation with firm performance; (2) Companies which have single business type have better performance than companies which have product diversification type but worse stability than companies which have product diversification type; (3) There is no obvious difference on firm performance and stability between companies which have correlative businesses and companies which have no correlative businesses;(4) The degree of geographic diversification has a negative correlation with firm performance; (5 ) Companies which have single geographic type have better performance than companies which have geographic diversification type but worse stability than companies which have geographic diversification type; (6)The firm performance of low-degree geographic diversification is better than that of high-degree geographic diversification, but there is no difference about stability between low-degree geographic diversification and high-degree geographic diversification; ( 7 ) The effect of product diversification and geographic diversification to firm performance is no difference; ( 8 ) The stability of geographic diversification is better than that of product diversification, but there is no obvious difference about firm performance between product diversification and geographic diversification.Based on the reasons of these practical results, we suggest that domestic companies should stand on domestic markets, focus on core business and enhance competitiveness of core business. And companies are also suggested to enter the international market after owning their competitive advantages.