A Cross Industry Empirical Study On The Relationship Between Vertical Integration And Corporate Scale

As an important form of corporate strategy, vertical integration is asignificant investment decision, which greatly affects the performance ofcorporate competitiveness and performance. Although there are a lot ofliteratures on vertical integration, almost no one proves the relationshipbetween vertical integration and corporate scale.Integrating the existing theories related to vertical integration, we deemthat, the vertical integration behavior of the corporate is the result drivenby these three powers—transaction cost, scale growth, and competition.According to this framework, we give hypothesis that there is significantrelationship curve between vertical integration and the corporate scale inone industry, and in different industries, the curves will be different, andthe driven factor should be monopoly.The author did a two-phase research, which based on investigatingmore than2000public listed enterprises from24industries in China from1998to2008. The paper concludes that: with the increase of the monopolyin an industry, the relationship between vertical integration and the scale offirm (SOV) will evolve from U-curve to inverted U-curve. The biggercorporate, in the industries with a small average scale and low monopoly,apt to be vertical integration; therefore, the SOV will be U-curve; while thecorporate, in the industries with a large average scale and high monopoly,will have a inverted U-curve SOV.