| Since Lang and Stulz (1994) found the phenomenon of diversification discount, many scholars probed into the subject and the point of view that diversification harms the enterprise value dominates the theory field gradually, and the diversification also becomes one of the hot spots in the field of corporate finance. Currently, China has the background of emerging and transition market so that China's objective conditions differ from western countries' substantially and the motivation and performance of China's firms differs from their western counterparts. Due to these considerations, the paper collects the data on the industry income composition and relative finance of listed companies of A share from 2002 to 2005, and studies the motivation and performance of China's listed companies deeply and systematically, which is combined with the institutional background of our countries' firms. In addition, the design refers to the diversification theory and empirical study results overboard and inboard.We organized the paper according to the clew of 'issue-literature review-institutional background-theoretical and empirical analysis-conclusion and suggestion'. In the empirical studies, we used the model of 'motivation-diversification-performance' put forwarded by the Hoskisson and Hitt (1990). Specifically, we studied the effect of diversification on corporate performance at first. After making clear whether diversification increase or decrease the performance, we studied the motivation of diversification based on relative theory. The paper consists of seven chapters.Chapter one is the introduction. It aims at bringing out the issues, defining the research logic and framework, and putting forward the improvement and innovation.Chapter Two defines the relative definition and reviews the theoretical papers. Firstly, it reviews the definition of diversification and defines the diversification in the paper according to requirements. Secondly, it reviews the classical conclusion from the relative theoretical studies and provides theoretical foundation for the following research.Chapter Three reviews the empirical studies. First, it briefs the measurement means of diversification and firms' performance. Secondly, this chapter reviews the classical papers on the performance and motivations of diversification in order to get to know about the development and status quo of the positive study on diversification. Finally, it introduces the development of our countries' study on diversification and points out the shortcomings of the current studies.Chapter Four analyses the institutional background of enterprise diversification. Firstly, it analyses the development of inboard and overboard firms' diversification in order to get to know the enterprises' diversification development. Secondly, it analyses the institutional background of China's listed companies and probes into the substantial impact of institutional background on the motivations and performance of diversification.Chapter Five consists of the descriptive statistical analysis of the enterprises' diversification status quota. Firstly, it introduces the selection of sample and data resources, and defines the main variables in the study. Secondly, it gives the descriptive statistical analyze of the main variables in the study.Chapter Six studies the effects of diversification on the corporate performance. Firstly, it brings out the hypothesis according to the institutional backgrounds. Secondly, it distinguishes the performance of diversification firms from that of specializing firms using the static cross-sesstional study means. In the meanwhile, it analyses the problem of reverse-causation and the lagging problem of diversification performance using the dynamic historical study means.Chapter Seven research the motivations of diversification. First, according to the study results, it analysis the relationship of firms' financial character, the corporate governance character and acts of firms' diversification, and then it forms hypotheses based on the theory of agency and overconfidence. Secondly, it checks the hypotheses using the means of uni-variables and Probit multi-regression analyses. Lastly, it analyses the results of analyses and draws conclusions.The conclusions and suggestions compose the eighth chapter. First, it reviews and summarizes the paper's study results, and reaches the main study conclusions. Second, it put forwards the suggestions, the shortcomings of the study and research direction in the future.The main findings of the paper on the performance of diversification are followings: (1) the acts of diversification hurts the firms' performance; (2) the higher degree the diversification is, the more discount the performance; (3) relating diversification does not hurt the firm's performance, while the unrelated diversification does; (4) the degree of relating diversification does not matter on the firm's performance, while the degree of unrelated diversification significantly negative relates to the firm's performance.Under the premises that the diversification hurts the firms' performance, the paper analysis the two motivations theoretically and empirically, in view that the theory of agency and the theory of overconfidence are strongly capable of interpreting. The main conclusions are as followings: on the average, the agency theory dominates the explanations of the Chinese firms' motivation of diversification, that is, the diversification is the means of the management or the controlling shareholders to catch the private benefits so that the diversification hurts the firm's performance.The improvements and innovations are as followings:First, it uses the model of 'motivation-diversification-performance' , put forwarded by the Hoskisson and Hitt (1990), to study the motivation and performance in a framework. Moreover, the paper develops the former model, brings in the outward and inward background factors, and brings out one more comprehensive framework to analyses the diversification.Second, the study improves the means to measures. It draws on ideas of the excess value means of Berger and Ofek (1995), adjusts many traditional performance index to control the effects of industry and year. Based on the work, it forms the comprehensive index to measure the firm's performance using the principal-components analysis. The means formed above makes the measurement of performance more comprehensive and makes the conclusions more robust.Third, the paper adds in more measure dimensions. In addition to the index to measure the degree of diversification, it defines the types of diversification according to the needs of research and compares the difference in performance between the specialization and diversification.Forth, the study widens the angle to check the effect of diversification on performance. Besides studying the diversification performance from the static point-of-view, it studies the problem of reverse-causation and the lagging problem of diversification performance from the dynamic point-of-view. In this way, the paper makes the research into the diversification performance more stable.Fifth, the paper analyses the motivation of diversification by the way of 'matching samples'. At first, the paper studies the diversification act of firms in the study period from the dynamic point. It selects the firms that outspread from specialized to diversification in the study period as sample and the firms that specialize in the study period as matching sample, and then analyzes and derives the motivation of diversification. Thus, the problem of endogenesis that may exit in the former research is avoided here.Sixth, the paper applies the behavioral financial theory to study the motivation and performance of diversification. Based on the theory of agency and overconfidence, the paper probes into the motivation of diversification and it avoids the problem of potential 'substituting explanation'. In addition, the paper applies the theory of learning by doing to explain the nonlinear relationship between diversification and corporate performance.
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