An Empirical Study On The Types Of Diversification And The Performance Of The Firms

Nowadays, the problem of the relationship between diversification and performance of firms has become a popular topic. However, there is no agreed conclusion at all. There are many questions such as whether the diversification has a value-enhancing effect or a value-reducing effect? Why some firms which undertake diversification strategy can be profitable while others which do not undertake diversification strategy can be unprofitable?In this thesis, we try to discuss the relationship between the diversification and the performance of a firm from the view of types of diversification, and further investigate the reasons why firms choose one type of diversification but not another. The main contents in this paper are as follows: first, we review the conception, the reason and the types of diversification. After summarizing the previous study we propose the main topics in this paper. Then we raise the hypothesis after making an analysis of the effects of the types of diversification on the performance of a firm. We make a statistical analysis of the sample and also a regression analysis. In this analytical part we focus on three questions. First, we compare the performance of the diversified firms and the specialized ones. Second, we make a regression of the types of the diversification and the performance of firms to find the effects of the types of the diversification on the performance of firms. Third, we divide the sample into two parts according to the types of the diversification, and separately make regressions on these two types to find out he reasons why firms choose one type of diversification but not another.According to this analysis we get the following conclusions: First, the relationship between the diversification and the performance of a firm is insignificant; Second, the uncorrelated diversification will decrease the value of firms, while the correlated diversification has an insignificant effect on the performance of firms; Third, the structure of the firm has a significant effect on the degree of uncorrelated diversification, while it has an insignificant effect on the degree of correlate diversification.