Researches On Relationship Between Diversification And Efficiency Of Investment Of Listed Companies

Diversification is an important strategy for enterprises to allocate resources,which matters the long-term business survival and development.While diversification strategy is adopted broadly by many a company,its real value is controversial.As an emerging-market country,the macro economy environment and micro corporate governance in China are apparently different from western countries.To study the relationship between diversification strategy and efficiency of investment in listed companies,we carries out researches intensively and extensively.Firstly,based on relevant literature,we defined the concept of diversification strategy and efficiency of investment,summarized the factors that influence diversification and efficiency of investment,and discussed the theoretical basis of the relationship between diversification strategy and efficiency of investment.Secondly,based on the materials including income of segments and relevant financial reports of 425 listed companies on the board of stock market of A-shares,ranging from 2006 to 2013,we adopted Wrigley method to class the type of diversification,used indicators like number of business segments(N),Herfindahl index(HI)and unrelated diversification index(DU)to measure the degree of diversification,used Richardson model to measure the efficiency of investment.Thirdly,according to the theoretical analysis and assumptions,and considering the micro and macro environment of listed company,we empirically analyzed the relationship between efficiency of investment and diversification strategy in the listed companies,then we did robustness tests as well.Finally,on the basis of empirical results,we provide suggestions,such as company should use diversification strategy properly,both considering macro environment and internal advantages.Finally,we have drawn main four conclusions as follows:(1)the degree of diversification of listed company is significantly positively related to efficiency of investment,and diversification can help company to solve non-efficiency problems;(2)the differences of effects that different types of diversification strategy acted on efficiency of investment are significant.For instance,the efficiency of investment in irrelevantly diversified company is lower than relatively diversified company;(3)the external environment will affect the value of diversification strategy.Besides,efficiency of state-owned company is lower than the private company,cos government intervention would weaken the role of diversification in promoting investment efficiency;(4)the internal ownership structure would affect the value of companies diversification strategy,ownership concentration is negatively correlated with the efficiency of investment,ownership concentration will also weaken the role of diversification in promoting investment efficiency.