Study On The Impact Of Diversification Of Listed Companies On Corporate Performance In China

How much impact dose diversification make on firm performance? This issue has caused wide public concern all over the world. Although scholars have not reached consistent results, more and more research found that diversification results decrease on performance in developed countries. As the facts shown, in USA, Japan and many other developed countries, there is a trend indicating the regression from diversification to specialization. Whether diversification in our country improves or decrease firm performance? Based on the Western research and the practice in China, this paper tries to develop empirical approach to study diversification's effect on firm performance in China's securities market and to find the reasons that can explain it properly.This paper first reviews the definition and classification of diversification, then analyzes the revenues and costs that diversification may bring to the company. Based on this theoretical analysis, this paper summarize the empirical study of the relationship between diversification and corporate performance at home and abroad. In this paper, we adopts generalized least squares, pooled OLS, fix-effect panel, instrumental variable, two-stage least squares, and other empirical methods. Before and after in control of the endogenous factors, the empirical analysis shows that: In 2004-2006, diversification has significantly negative impact on the performance of China's listed companies, but the endogenous problem between diversification and performance is not significant. In the last, this paper puts forward some policy suggestions. For example, companies should regress from diversification to specialization and enhancement core competitive ability. Further more, this paper pointed out the direction of further studying.