An Empricial Study On The Impact Of Diversification Of China’s Real Estate Enterprises On Firm Performance

Real estate has always been the most remarkable industry in China. It is not only related to people’s livelihood and the most basic needs, but also it is the direct lifeblood of the most important pillar industry and economy in China. But in recent years, Chinese government has continuously enhanced the policy control of real estate, which reduced the profits of real estate enterprises, and intensified the operation risk, thus more and more real estate enterprises began to look for new ways. Under the dual background of industry and market change, diversified operation has become an important strategic choice of real estate enterprises no matter it is forced by the situation or the development needs of enterprises. But for the long-term development of the real estate enterprises, it is difficult to know whether diversified management is good or bad. Therefore, this paper has researched on the relationship between diversification and firm performance, analyzed current diversified operating state of real estate enterprises, and discussed whether the diversification will suitable for real estate enterprises in China, and how to carry out diversification strategy and other issues.Firstly, this paper reviewed the domestic and foreign research literatures which are related to diversification and firm performance, introduced the relevant basic theory, and analyzed the positive effects and negative effects which diversification may bring to the enterprises. Next, this paper analyzed the current situation of firm performance and diversification, and comprehensively analyzed the efficient cause of diversification from both external and internal aspects.Secondly, this paper analyzed and selected the measuring index of diversification and firm performance, and calculated an integrated index which can fully measure firm performance by entropy method. Through the empirical analysis we have reached the following conclusion: diversification strategy is relatively common in real estate listed companies in China, but the level of diversification is not high, and main business is still real estate development and management. Within a certain range, the higher the diversification degree of real estate enterprise, the better the firm performance. Compared with the unrelated diversification, the related diversification is more advantageous to improve the firm performance. There is a significant positive correlation between total assets and firm performance, that is, the larger the enterprise, the better the firm performance.Finally, based on the summary of empirical study, this paper has put forward the following suggestions to real estate enterprises in China: enhance leading business, cultivate core competitiveness; Overall considerate company’s internal conditions and external market, and choose appropriate opportunity. Real estate enterprises should choose the related industry of real estate for diversification as far as possible but the diversification level of the related industry shouldn’t be too high.