Diversification, Shareholder Rights And Firm Performance

Diversification is a measure to reduce business risk, develop new market, and integrate resources for a long time in public eyes. However, researchers abroad show value of enterprise is decreased by diversification. Great deals of theoretical and empirical studies have proved diversification is a conflict outcome between shareholders and managers, majority shareholders and minority shareholders. On the logic of corporate governance, because of the separation of ownership and management rights, corporate governance impact financial performance and firm value greatly, and appropriate ownership structure can optimize corporate governance, and decide diversification or specialization in a company.And according to the mechanism above, the index of ownership structure is used in the paper, include the proportion of shareholder’s ownership, block holder, CEO, for researching impacting diversification by ownership structure; and besides, we collect dates from traditional manufacturing industry, testing how diversification impacts value of firms. Furthermore, we conclude theory, statistical analysis, draw lessons from pertinent literature, and give a new definition of diversification. Firstly, the paper does give a new definition of diversification, classify diversification, discuss two sides of diversification, and conclude the motive of diversification. So, we explore motive of firm diversification, the reason of diversification discount and how to control diversification behaviors inefficiently. Secondly, we choose 273 public companies of traditional manufacture for analysis. It is shown that diversification has a negative correlation with value of firms and diversification discount; thirdly, we analysis theory and statistical result, it shows that the proportion of shareholder’s ownership, block holder, CEO can impact diversification. Lastly, we give a rational suggestion for corporate governance.