Research On The Relationship Of Diversification And Corporate Value

Diversification is adopted widely in modern companies. Since reform and opening up, the diversification process of Chinese companies has been ups and downs, including the attempt in the80s, the rise in the90s and the fall in the late90s. Into the21st century, the Chinese managers were still being confused by the choice between specialization and diversification. In previous research, the scholars mainly focused on the relationship between diversification and corporate performance, ignoring the impact on other aspects of corporate value. Also the research was mainly aim to those listed companies in western countries, the conclusions are not fully comply with China’s institutional environment background and the level of corporate development, so it can’t provide effective guideline for Chinese corporate strategic decision.Based on this, this study focus on the relationship between diversification and corporate value. After a review of the related literature at home and abroad, defines diversification and corporate value, and then summarizes theoretical research and empirical research about the relationship. On the basis of existing research, this study will conduct a comprehensive analysis of the relationship between diversification and corporate value from "profitability-risk-growth" three aspects. Furthermore, according to institutional environment and corporate development in the emerging economic, we refine two influence factors of the relationship:political relationship and organization size. Organization size represents corporate own level of resources, While political relationship represents a non-market way to acquire external resources. We will explore the influencing factors of the relationship between diversification and corporate value from both inside and outside aspects.According to the research problem, this study collected the listed companies’data from2003to2012in our country. After the encoding of the core concepts and regression analysis using STATA software, we found that there were profitability discount and growth deceleration but also operation stability in diversified corporate. In terms of influencing factors, organizational size have a positive impact on the relationship between diversification and corporate value, while political relationship did not have a significant impact.The conclusions are meaningful practically. The managers have to consider the strategy of diversifying carefully and dialectically. Furthermore, the key is Constructing the core competence, only improving the resources and market strength, can managers reduce the diversification discount and boost the risk-reduction of diversification, so as to promote the value creation.