Entrepreneurial Capital, Diversification Strategy And Performance

Most Chinese enterprises still used non-related diversificationstrategy which alsocalled“biggerfirst then strong", rather than develop their core competence advocated byacademics.However, which strategies are better for development of an enterprise?According to the strategic integration framework proposed by Peng,enterprises should maketheir strategy choices based onnot onlyexternal market, their own resources andcapabilitiesbut also different institutional environment. In the period of economic transition,Chinese enterprises need to choose more appropriate strategiesaccording to the institutionalenvironment in their own area. This paper tries to theorize Chinese unique situationduringthe period of economiestransition,clarifies how entrepreneurialcapital impact businessperformance through diversification strategic,provide favorable theoretical basis andpractical guidance for companies to make a reasonable strategic choice and for thegovernment to enact policies conducive to enterprise development.This paper takeshuman capital theory, social capital theory,industrial-based view,resource-based view and institutional-based view as theoretical basis. Based on literaturestudy,we construct a theoretical model about entrepreneurial capital, strategic choice andperformance, and introduceinstitutional environment as a situational factor, make relevantpropositions and inference. Through sensible discussion and empirical analysis, this paperdraw the following main conclusions:1. Different entrepreneurial capital has different effects on diversification strategy. Inrespect of entrepreneurial human capital, the average age of entrepreneurs andentrepreneurialtechnical professional background has a significant negative impact ondiversification strategy; Entrepreneurial finance occupational background has a significantpositive impact on diversification strategy. In respect of social capital,entrepreneurialcommercial social capital has a significant negative impact on thediversification strategy.2. Different entrepreneurial capital has different effects on enterprise performance. The average age of entrepreneurs and entrepreneurialtechnical professional background have asignificant positive impact on enterprise performance. Entrepreneurial financeoccupationalbackground has a significant negative impact on enterprise performance.Entrepreneurscommercial social capital has a significant positive impact on performance.3. Diversification strategy has a significant negative effecton performance. In themeanwhile, diversification strategy played a partial intermediary role of the relationshipbetween entrepreneurial capital and performancethrough three paths. The first path isdiversification strategy enhance the positive impact of entrepreneurial technical professionalbackground on performance. The second path is diversification strategy enhance thenegative impact of entrepreneurial finance occupational background on performance. Thethird path is diversification strategy enhance the positive impact of entrepreneurialcommercial social capital on performance.4. The institutional environment plays a regulatory role in the relationship betweendiversification strategy and performance. Institutional environment weakenthe negativeimpact of diversification strategy on performance.This article has improved the theoretical framework of how entrepreneurial capitalimpact on performance under Chinese situation,describedthe relationship amongentrepreneur capital, diversification strategy and performancemore comprehensive. Thisarticle has some practical inspiration for both enterprises and governments. We affirmed thegrowth path which be stronger then be bigger, and affirm government’s policies ofdeepening the reform which have important implications for enterprises and economicdevelopment in China.