The Empirical Research On Diversification And Strategy Choice Of China's Listed Corporations

Diversification is one of the essential strategies for corporations in China and overseas. However, diversification has two sides. Positives impacts include optimizing the distribution of resources, erecting an internal capital market and dispersion of operational risks; on the other hand, diversification can cause over-investment, subsidizing of different departments, distraction of investment and increase of principal-agent costs. Researching diversification, especially the Chinese one, is helpful for us to understand the reasons for diversification and its influences on corporations. This also lays a solid foundation for corporations to make the right diversification decision.This essay firstly has a review of domestic and Western diversification theory. Meanwhile, this essay takes a deep analysis on China's diversification, and then gives out the characteristics of China's diversification. After these, from the perspective of principal-agent cost theory, the essay finds out how diversification affects enterprise performance by empirically regression of diversification and enterprise performance. Subsequently, the essay categorizes the styles of diversification and then investigate how different style of diversification influences enterprise performance. According to the conclusions, this essay further researches what roles are played in diversification decision making, from the viewpoint of stockholder structure. And, the relationship between shareholder structures and diversification degree is also committed.The result shows that stockholder structure indeed has an evident bearing on diversification decision making; the degree of diversification is related to stockholder structure. It also shows that principal-agent cost theory is applicable in explanation of China's diversification. So building up a sound market system could be able to offer an effective decision making environment. In corporations, reformation and improvement of stockholder structure and corporation governance, in particular improving the function of the Board, could help corporations to make the right diversification strategy decision.