The Relationship Between Degree Of Diversification And Corporate Performance Empirical Research

There are two strategic choices in the development process of enterprises: diversification and professionalization. The enterprise is swing in them when it is on some level. In the 1960 s to 1970 s, the enterprises merger and acquisition tides in American were vigorous day by day, then diversification reached to the top place so that many other countries followed it. Also, many experts in finance began to study it at the same time. From that time on, they had provided a certain the oretic and practical basis on the relations between diversification and company performance. However, at the forth time tide of American M&A, the running strategies of companies have been totally changed into refocusing. It means the companies return to their main businesses, which has greatly improved their performances. At this point, there are two completely different trends on the study of the relations between diversification and company performance. Is it positive or negative correlation between diversification and company performance? It gives us a meaningful topic to study.Compared with foreign countries, these enterprises in China had initiated the tide of diversification in 1980 s, while those western enterprises had been back to refocusing. what’s a pity, the decades development didn’t bring prosperity for Chinese enterprises. Moreover, the bankruptcy of Giant Group and ChunLan gave warnings to these enterprises. Then, those Chinese enterprises were calling for the professional way in the 1990 s. Nonetheless, there are many successful examples of diversification such as DuPont and Haier etc. Therefore, it is hard to say whether the correlation between diversification and company performance is negative or not. We need a further and deeper study on it.The main study ways of this paper are qualitative and quantitative, standardized and empirical analysis. Firstly, it sorts the theories and conclusions of diversification and company performance home and abroad. There are divided into three categories. Then combing the specialities of Chinese enterprises, this paper will give descriptive statistic and empirical analysis according to the Chinese listed companies information, which is given by the net of stock exchange, the databases of CCER and CSMAR, the data of 100 Chinese listed companies from 2011 to 2013. Next, referring to the research ways and measurement home and broad, combing the practical situation of China, this paper will choose profitable measurement of diversification and company performance to research. And it will make relevant econometric models for all samples、pure or main business、related diversification business and unrelated diversification business.Furthermore, it will analysis the reasons of such models and draw conclusion. Finally, combing the conclusion of this paper and the special situation of China, it will give some suggestions for the Chinese diversification companies and those who want to be.There are the conclusions. It is negative correlation between Chinese listed firms performance and diversification, which exists diversification discount. And the company performance in professionalization firms is much better than those in diversification ones. In this paper, moreover, diversification enterprises have been classified into two categories: relevant and irrelevant diversification firms. Both of them have been analyzed in refocusing way. Also, it gets another conclusion that the performance of relevant diversification firms is much better than the irrelevant ones.There are the reasons why it gets such conclusions. Firstly, information from shareholders and management cannot be matched, which leads to be inefficiency and pay higher agency cost. In the process, the management always sacrifices shareholders’ benefits to get interests. Secondly, the diversification enterprises cannot cope with the training of the core competitiveness, especially those irrelevant diversification firms, they couldn’t master every field and even couldn’t run their main business.Sometimes, they even drag the development of original business.Eventually, subsidy is very common in cross-industry. Generally speaking, the departments with better performance always input capitals to those worse ones in diversification firms.Some industry excessive investment,and not enough investment in some industry sectors,which can take down the whole enterprise as a whole.Then, this paper will give relevant comments and suggestions for the diversification enterprises or those who will be.There are the suggestions. First, firms should give priority to development of main business and raise their core competitiveness at the same time. Second, the firms’ diversification development should be based on professionalization and choose the relevant diversification way. What’s more, firms cannot blindly choose diversification development. Last but not least, firms need to strengthen their governance mechanism.Then,there are three innovations in this paper:at first,on the research content to promote the relationship between diversification and corporate performance study of update and confirm. This article selects the data over the past three years, which is beneficial to update this aspect research, and use the condition of the listed companies in China, is established in our country modern enterprise diversification with a reflection and corporate performance relationship, provides some Revelations for China’s enterprises on the diversity and the warning role;Second, on the conclusion of diversified confirmed there were negative correlation with corporate performance. To prepare diversified road or specialization enterprise the certain enlightenment and guidance; Third, on the diversification, related diversified enterprise performance is better than that of unrelated diversification, in part to the related enterprises in diversified road some reference, increasing their chosen carefully.Finally, this paper studies some deficiencies, such as measure not comprehensively lead to the results of the study is accuracy, shortcomings and so on sample size is not big enough. And furthermore, prospects for follow-up study generated.