The Study On The Motivation And Performance Of Vertical Integration Of China Coal Enterprises

The article firstly analyse the basic condition of China coal industry,whichshows that China coal industry has the market structure with low degree of marketconcentration, low production differentiation, industry entry barriers that increase inrecent years but mainly due to the enhancement of policy barriers, high barriers toexit.The paper also reveals that the China coal enterprises can choose verticalintegration by self-investment, enterprise group and joint operation.Based on the theories of industrial organization,transaction cost,technicalefficiency,the paper analyses the motivation of the vertical integration of China coalenterprises by making an analytical framework with the pursuit of intrinsic interestand external force to promote.Based on the former,the article indicates that coalfirms can choose vertical integration to reduce transaction cost,reduce productioncost through benefiting from economics of scale and scope and increase marketforce.Based on the latter,the article believes in that the vertical integration of coalfirms is driven by the policy enviroment,market enviroment and ecologicalenvironment.The article estimates the vertical integration indexes of some listed coalcompanies in China through Davies-Morris index for the first time.The resultpresents that vertical integration indexes of China coal enterprises basically have an upward trend from2004to2010.The indexes indicate the degree of verticalintegration is deepening, but big difference can be seen in different firms.The empirical analysis with individual-fixed-effect panel-data model,supportsthat the vertical integration of coal firms can reduce transaction cost, improvemarket share, but be not conducive to the overall business performance. Animportant explanation from this article is that, in recent years,coal-businessprofitability is much higher than the upstream and downstream business, whichdepresses the overall business performance of coal firms with higher verticalintegration. Therefore,the coal firms should consider the profitability differencecompared with upstream and downstream. But the explanation has a certain timetrait and need be studied further.Generally speaking,the thesis holds that verticalintegration is more good than harm to coal firms. The article also gives an empiricaltest that coal industry policy is one of the main driving forces to vertical integrationof China coal enterprises,hence,the government should support them more policies.