Study On Factors Affecting Diversification Alteration Of Manufacturing Listed Companies In China

Diversification is a common mode of operation in modern enterprises. In the developed countries, diversification strategy has already been used by companies for over 70 years. The diversification strategy development has experienced the periods of birth, rise, upsurge, and"Back to Basics". However, in China, diversification has not a long history, but develops rapidly, particularly in the listed companies. Nowadays, most of the companies'main business income is from three different businesses. This shows that the situation which enterprises use diversification as the strategy of pursuing growth is very common in China.Along with the deepening of enterprise diversification, scholars of our country increasingly concerned about this behavior of enterprises. However, most studies focused on the economic consequences of diversification, the research about exterior and internal factors which could influence to diversification is very few. In fact, the success or failure of diversification has a significant relation to these factors. Therefore, having an objective and Comprehensive understanding of the influence factors and their affections is important.What factors could affect the changes of diversification degree? Why are such changes? How to take advantage of these factors to promote a sound development of diversification? In order to solve these problems, on the basis of reviewing the theoretical and empirical researches, we study on the factors which could affect the degree of diversification.The first part is an overall introduction, which followed by the research background, the purpose of the study, the research framework and research innovations.The second part is an overview of the literatures. In this part, we introduce the definition from two angles at first. Then, we present six typical theories of diversification motivation. In light of the actual conditions of our country, we analyze the special incentives of enterprises in China. Then, we introduce five commonly used methods to measure the degree of diversification in the empirical studies. Furthermore, the advantages and disadvantages of each method were compared. At last, we analyze the factors which could change the degree of diversification, and overview the results of empirical studies that written by previous scholars.The third part focuses on the empirical research design. According to the research proposes, we put forward six study hypotheses. Subsequently, we use the financial data of 132 Chinese manufacturing companies which issued A share. In order to investigate the details of the diversification changes, we divide the research window into three parts, which are 2001—2003, 2003—2005, and 2001-2005. Then, we select the indexes which represent the degree of diversification, macroscopic economy and environment, industry performance, and the company individual characters respectively. At last, we choose descriptive statistics,Pearson correlation and linear regression as main statistical methods of the paper.The forth part focus on analyzing the empirical results respectively. The results indicate that: 1) The diversification degree of sample companies presents a steady rising during 2001—2005, but the rising range in 2001—2003 is less than in 2003—2005. 2) The GDP growth rate is positive to corporation diversification, significant in statistics. On the contrary, the securitization ratio is negative to diversification, significant in statistics. 3) There is no significant correlation between industry performance and diversification degree. 4) In the aspect of company individual characteristics, corporation performance has a positive affection to diversification alteration, especially the affection made by total asset growth is significant in statistics; corporation ownership structure has a negative effectiveness to diversification degree, which is not significant; the higher debt ratio the company is, the larger tendency it would diversify.The fifth part is conclusions. Through the above theoretical analysis and empirical testing, we get the following conclusions: 1) the diversification degree of sample companies presents a steady increasing tendency, but the rising speed is slower than previous period, which shows that the diversification decisions made by administrators are more and more rational. 2) The prosperity of the country could provide a good macro-economy environment so as to promote the diversification. But the sluggish stock market is not conductive to enterprises financing from exterior channels. Therefore, this situation would intensify companies'efforts to strengthen their internal financing capacity through diversifying his business. 3) The industrial performance alteration has no obvious affection to diversification. This phenomenon may be due to the diversification motivation less dependent on the growth and profitability of the industry. 4) A good capability of development will provide abundant resources for diversity expansion. And the corporate ownership structure changes have little effect to degree of diversification. The reason may lie in the fact that some state-owned enterprises have led to changes of shareholding structure, under the increasingly pressure from the market competition, they usually choose the diversification as their long-term strategy. Besides, the less solvency levels the company is, the larger tendency it will diversify. This may be due to the limited external financing capability, because it may promote companies to enhance internal financing capacity through diversification.Based on the above conclusions, we present a number of recommendations for promoting the sound development of diversification: 1) Be an objective and comprehensive understanding and analysis of business diversification acts. 2) The government should continue to maintain the stability of the country's economic policies, accelerate the process of marketization, and create a macroeconomic environment conducive to enterprise development. 3) Choosing a suitable time for Diversification. 4) Enhancing the quality of personnel management, improve corporate governance structure, promote rational diversified operations.Limitations of this study are: the time frame is short; the sample is not comprehensive enough; the variables are insufficient. In this regard, there are some study suggestions for future researches: 1) Increasing the sample capacity and time span. 2) Selecting more variables which could affect the degree of diversification, such as the investment in R & D, the education level of administrators, and so on. 3) Diversification could be diversified by type into related diversification and unrelated diversification.