Research On The Cause, Mode And Performance Of Vertical Integration Of China 's Coal And Electricity Industry

Vertical integration, aiming at realizing firm’s operation objective, refers to the enterprise focusing on its existing leading products and core technologies to extend business along the industry chains, whose essence is a corporate decision-making process about the choice of insider trading or market transaction. Not only affecting the performance, Vertical integration between the coal industry also influences the industrial structure, which relates to both enterprises’ strategy and industrial development. Therefore, a explicit study of motivation, model and performance underling the vertical integration between China’s coal industry has its theoretical and practical significance.To begin with, the article reviews existing theories mainly from two aspects:the basic theory of vertical transaction and coal-electrical relationship. In the theoretical part, the article tracks the basic theories of vertical transactions form three aspects-motivation, model and empirical research, while the current studies often pay close attention to specific dual pricing system, coal-electrical industries’vertical Associates and Vertical integration. We can find that there is no comprehensive study that elaborates the motivation, models and performance behind coal-electrical Vertical integration.Then, this paper analyzes the basic state,market concentration and entry and exit barriers of the coal and electrical industries, and further elaborates the trend and the process of their vertical transactions. Based on this, the paper summarizes the reasons why coal and electrical industries choose vertical integration, which maybe driven by both internal incentives and external market. Overall, coal-electrical industries could attribute the vertical integration to four areas:economies of scale, economies of scope, instability of demand and industrial structure. After that, the paper focus on the patterns of vertically integration, drawing the conclusion that the patterns can be divided into business property type, market contract type and government intervention type, which stems from their binding nature. Furthermore, we also classify the trend of integration into three types on account of the extent of integration:strategic cooperation, business conglomerate, as well as fully vertically integrations.Finally, the empirical part selects the panel data of the46public companies from coal-electrical industries, studying how much influence the extent of vertical integration has on firm’s performance. The paper explicitly measures the degree of vertical integration, and well designs the relevant control variables that affect performance, all which are in view of the financial cost management theory and industrial organization theory. Next we carry on the unit root test to the panel data, and determine the Variable intercept model with fixed effects via Covariance test and Hausman test. The regression results demonstrate that corporate performance is under the effect of vertical integration degree, enterprise scale, operational efficiency, financial status.etc. To make it clear, vertical integration has a positive impact on firm’s operation performance, and with the deepening of vertical integration, enterprise performance will also be improved.