Diversification And Corporate Performance Of China's Private Enterprises, The Relationship Between Empirical Research

The private sector resumed growth after China's reform and opening up to the world economy. The following nearly thirty years witnessed its vigorous growth and today it contributes to more than half of China's GDP. Some of the private enterprises were listed after restructuring and have become a new force in the securities market. With China's entry into WTO and improving market environment, the private enterprises in China are facing fierce competition from both state-owned companies and foreign companies. Diversification strategy is one of the strategies that many of the private enterprises have taken to expand their business and minimize the operation risks. In academe, one of the hottest topics in strategic management is the research of the performance of diversification strategy, but until now, researchers have not come to an agreement on the relationship between diversification strategy and enterprise performance, and their samples were mostly about the whole listed companies, but so little about the private enterprises. This thesis addresses issues related to the relationship between diversification strategy of privately-owned enterprises and their firm performance.First, the historical studies of diversification strategy have been reviewed from the theoretical to empirical points. Then the thesis will make a design, put forward hypothesis and constructs relevant model for the empirical research late.In the empirical research, we screen out the financial data of 104 private enterprises listed companies in ShangHai Stock Exchange markets, and then use the methods of regression analysis and variance analysis to compare the firm performance of listed companies which have different diversification degree and types. This thesis selects the ROE and EPS as the proxy variable which weight company financial performance, and Herfindahl Index and Entropy is adopted to evaluate the level of diversification. We find out that: firm performance has remarkable inverse correlation with diversification degree. The firm performance and unrelated diversification have inverse correlation too. But firm performance and the related diversification have an unremarkable correlation. Companies which have single business type have the better performance than the companies have diversification strategy, companies which have related businesses have a little better firm performance than companies which have unrelated businesses.At last, overall discussion has been made according to the empirical results. Some proposals about diversification strategy also have been put forward. Finally, we will point out the limitation and the future direction of this research.