An Empirical Study On Corporate Diversification And Firm Performance

Since the well-known strategist Ansoff proposed the diversification strategy in the 1950 s,the study of diversification began to attract the attention of a large number of scholars.However,so far the research on diversification has not come to a conclusion.Whether the impact of performance is beneficial or harmful,should companies be low or highly diversified or have a suitable range? Should companies choose to specialize,related diversification,or non-related diversification strategies? When it comes to relevant or non-related diversifications,it better to choose high or low level? Also in the enterprise's own practice,we can also observe that the diversification of different companies has resulted in very different results.BYD has grown from a rechargeable battery as main business to an automotive industry to gain a greater competitive advantage,but it can also see that Giant Group eventually collapsed due to its blind pursuit of diversification and its involvement in health care,real estate,and computers.The tourism industry involves many industries,involved traveling,tasting,residing,purchasing and entertaining.Diversified behavior is also very common for tourism companies.For example,OCT entered the real estate industry,China International Travel Servies exploited duty-free business.Meanwhile,diversified activities within the tourism industry are also frequent.For example,Mount Emei operates scenic mountain tour tickets,passenger ropeways,hotel services and other related travel services.Therefore,this paper focused on the tourism industry,tried to explore the relationship between diversification and performance of tourism companies,in order to guide and standardize the diversified behavior of tourism companies and provide strategic reference for them.As the brain center of tourism enterprises,the top management team plays a key role in business management and development,strategy formulation and implementing.The performance of diversification strategy may be moderated by the experience of the top management team.Therefore,this study added top management teams' experience,researched its moderating effect between diversification and performance,in order to provide reference for the cultivating,replacement and selection of top management in China's tourism enterprises.Based on the review of the relevant literature on diversification management;diversification and performance;diversification,top management teams' experience and performance,this study set up the research models and hypothesis,used herfindahl index,entropy index,related entropy index,non-related entropy index to measure the degree of diversification,used diversified dummy variables to classify weather diversified or not,and used the entropy index to measure the diversified types of enterprises(specialized,related diversification,and non-related diversification).The ratio of return on net assets,return on total assets were indicators of diversification performance of the companies.Average tenure of top management teams and average age of top management teams were indicators of top management teams' experience.The company's scale,company's age,capital structure,growth ability,local government intervention,sub-sectors were selected as control variables.This thesis collected 144 travel companies(28 A-share travel companies and 116 New Third Board travel companies),took a total of 500 observations over the three-year data from 2014 to 2017(76 observations that didn't meet the requirements)as a sample,a panel data regression method was used to conduct an empirical study on the relationship between diversification degree,diversification types,and performance,and studied the moderating effect of top management teams' experience bewteen diversification and performance.Through descriptive statistical analysis and panel data regression,the following results were obtained: 1.A-share tourism companies which take diversification strategy was beneficial to the improvement of corporate performance,and the degree of diversification was significantly positively correlated with performance;there was no significant relationship between diversification performance and specialization performance of the New Three Board tourism companies,and the degree of diversification has no significant relationship with performance.2.Related diversification degree was significantly positively correlated with performance,and non-related diversification was no significantly positively correlated with performance in Ashare tourism companies;the New Three Board tourism companies conducted related diversification might undermine corporate performance,and non-related diversification was no significantly positively correlated with performance.3.There was no significant relationship among related diversification performance ? non-related diversification performance and specialization performance of A-share and New Three Board tourism companies.4.Average tenure of top management teams had different moderating effect bewteen diversification degree and performance in different scale tourism companies,average age of top management teams all had no moderating effect bewteen diversification degree and performance in different scale tourism companies.5.Average tenure of top management teams had different effect in different scale and different diversification degree tourism companies,average age of top management teams had different effect in different scale tourism companies.In order to further explore the relationship among diversification,top management teams' experience and performance in tourism companies,this paper selected leading firms in A-share tourism companies which were representative and referential as research objects,it found that A-share tourism leaders with high performance usually had such characteristics: they have two major business units which are not traditionally associated with each other,but they have some kind of synergy at the strategic level,and one of the business units is in an emerging subindustry with large market space,high gross profit margin,and high growth rate.Finally,based on the above research conclusions,it analyzed some insight for the diversification and selection of top management teams in tourism companies,explained the limitations of this research and provided reference for the future research directions.