The Research On The Relationship Between Diversification Degree And Corporate Performance Of The Thermal Power Companies Listed In China

Diversification refers to the cross-product, cross-industry business expansion of an enterprise. Due to diversification could optimize the overall allocation of resources, decentralize the risk of single operating, establish the internal market and make the entity to take the advantage of tax relief and economies of scale and so on, domestic and foreign companies stepped onto the road of diversification through internal development or external merger.Electric power industry is the foundation of the national economy, as well as the guarantee of the human life, the production and social progress. As the mainstay of the electric power industry, the development of thermal power enterprises also affects people’s livelihood. However, in recent years, the pressures derived from coal price, industry policies and the waste emission limitation have made the thermal power enterprises facing a serious situation. In this case, many companies have chosen the road of diversification, trying to step out of the trouble by taking the diversification’s advantage of securing the supplement of coal and decreasing the cost, however, the corporate performance after diversification is uneven. At present, there are some studies about the relationship between the diversification degree and firm performance, however, no separate study or literature is about that of the thermal power industry listed companies in china. This paper tries to achieve this goal, aiming to provide a basis for diversification strategy decision of thermal power enterprises.After determining the research background and significance of the research, this paper makes a conclusion on the definition of diversification from different perspective defined by domestic and foreign scholars, the different classification of diversification, as well as the different results about the relationship between diversification strategy and corporate performance from theoretical and empirical studies. The performances of28thermal companies listed on the Shanghai and Shenzhen Stock Exchange in the year from2009to2011are chosen as the research objects and a multiple linear regression equation is established. Then, this paper makes an option of the rate of return on net assets, earnings per share, return on fixed assets and Tobin Q value as the performance indicators from internal and external aspects of the enterprises, combining with the characteristics of the thermal power industry, the Herfindahl index and Entropy index as the measurement of the degree of diversification, and selects the logarithm of fixed asset size, debt ratio and fixed assets turnover as control variables, meanwhile, this paper puts up forward the assumptions on the relationships between independent variables and dependent variables. Through descriptive statistical analysis and regression analysis, the paper obtains the following results:firstly, the diversification degree has a negative correlation with the indexes of return on net assets and earning per share. Secondly, a positive correlation exists between diversification and return on fixed assets. Thirdly, the external measurement indicator of the performance, namely Tobin Q, has no significant correlation with the degree of diversification. Fourthly, the capital structure is negatively correlated with performance, the corporate performance changes at the same direction as fixed asset size and the relationship between fixed asset turnover and performance is not certain. Then, this paper analyses the reasons why the degree of diversification and return on net asset, earnings per share are negatively correlated from the aspects of scope economy and risk dispersion, the capital structure factor resulting to the positive correlation between return on fixed assets and diversification degree and the reason why no significant correlation exists between the degree of diversification and the value of Tobin Q from the aspect of the stock market. The analysis of a problem is to solve the problem. Some suggestions about the direction of future development of thermal power enterprises are putted up in this paper from diversification angle. The paper is end up with the deficiencies of this research for some objective limitation conditions.