Firm Features, Industry Characteristics And Diversified M&A

Diversification strategy plays an extremely important role in the developed countries. With the gradual progress of China’s reform and opening up and the deepening of the integration of world economy, Chinese enterprises start to practice diversification strategy due to the impact of diversification strategy in developed countries, as well as government promotion.The motive of diversification is different. The effect is not the same. Enterprises can buy their own production line and hire professional staffs to achieve the goal of diversification. But this method spends a lot of time, and faces a great risk. Merger and acquisition provides a shortcut for corporate diversification. Through purchasing the target company, corporate can directly acquire the resources of the target enterprise to strengthen the competitiveness within the industy or access into a new industry.There are many studies about diversified M&A at home and abroad, mostly concentrates on the relationship between the diversified M&A and corporate performance. Although the conclusions are not uniform, but most studies have shown that the post-merge enterprise performance of diversification is lower than the non-diverse. But the difference of the performance is due to diversified merger and acquisition activity, or the continued development of the company’s characteristics? There is little literature devoted to an analysis of diversified M&A firm’s characteristics. So this study is of great value.Firstly, this paper reviews the domestic and foreign research situation about the relationship between diversified M&A and corporate performance. Then put forward the research content and research significance of the article. Secondly, the paper put forward hypothesis and design a model through stating the basic theory. The empirical part includes the median difference test between the two types of sample, correlation test and regression analysis. Among them, the regression analysis is the main part. The two kinds of M&A types is defined as1,0, respectively. Building a model including company traits, industry characteristics and control variables examines what kinds of the company tend to choose diversified M&A, what kinds of the company tend to choose non-diversified M&A and also provides a new interpretation for diversified invalid theory. Finally, the article conducts robustness tests through alter proxy variables of the explanatory variables.The state-owned is a feature of China’s enterprises that is remarkable different from foreign enterprises. Therefore, the characteristics of the company include this indicator. The empirical results show that the company with features of bad pre-merger corporate performance, high degree of diversification, poor prospects, low enterprise risk, non-state-owned, long listed year and high industry risk, tend to choose diversified M&A. The relationship between internal source of capital, industry profitability, company size and the diversified M&A is not significant.