The Empirical Study On Ownership Structure And Corporate Diversification Of Chinese Listed Companies

More and more domestic and foreign literatures have found the phenomenon of diversification discount. Given the extensive evidence that diversification is associated with a reduction in firm value, why do many firms remain diversified? Agency cost theory is one of the explantions. Based on the principal-agent theory, this paper study how ownship structure impact on corporate diversification comprehensively. The corporate diversification is always attributable to managers under the traditional pincipal-agent theory, that is, the utility-maximizing economic managers may take actions to diversify corporation. However, corporate diversification may be a mean that the controlling shareholders exploit minority shareholders. According to the principal of ultimate Ownership, the samples are classified into two groups by whether or not the separation of the controlling right and the cash flow right.Based on more than 700 Chinese listed companies in 2008, we conduct multi-variable regression analysis on the relationship between ownership structure and corporate diversification. The empirical findings show that the level of corporate diversification is negatively related to managerial equity ownership and to the equity ownership of the first blockholder. We also find that the level of corporation is positively related to the separation between the controlling right and the cash flow right, espercially in the companies whose controlling shareholders are private. On this basis, this paper suggests that the proportion of managerial shareholdings should be increased and Executive Stock Option Plan should be promoted actively, also that the government should complete the law to protect investors and strengthen the supervision of the securities market.