Business Scope And Business Performance Relationship Empirical Research

"Diseconomies of Vertical scale" theoretical conjecture made, it has yet to be empirical certificated. According to this conjecture, the scope of business should show a negative correlation with the performance of enterprises. In this paper, China's food industry listed companies are used as sample of study, to test whether this is a negative correlation between the relationships. The number of industries and Herfindahl coefficient are used as a measure of the scope of business, Rate of return on common stockholders' Equity and Return on Assets are used as a measure of operating performance so as to build correlation analysis model. Further, put the four assumptions to be certificated: The number of industries and Rate of return on common stockholders' Equity was negatively correlated; and the number of industries and Return on Assets was negatively correlated; Herfindahl coefficient is positive correlation with the Rate of Return on Common Stockholders' Equity; Herfindahl coefficients and Return on Assets were positively correlated. The study concluded that the evidence supported the assumption well, the main conclusions show: as a "vertical scale" in the form of this study, there is Negative correlation between the scope of business and the operating performances. Specifically, the scope of business, the more dispersed, the unit cost paid the greater price, the poorer the performance. Conversely, the smaller the scope of business more focused, smaller in the unit costs, the better the performance. Further, with more business units, a larger scope of operation of enterprises is not conducive to the formation of competitive advantage. It will bring a heavy burden of costs, and will ultimately lead to inefficiency, and be not economic situation.