Research On Diversification And Capital Structure In Agricultural Listed Enterprises

With the rapid development of economy and market, enterprises in China have beengetting involved in new industries through mergers, restructuring, acquisitions since the1990sand diversification strategies are being implemented to alleviate the business risk and broadenthe profit channels due to the fact that the single operation mode cannot meet theirdevelopment requirements. An appropriate financial strategy should always be adapted to beconsistent with the business strategy the enterprises implement. In order to make reasonablearrangements for the distribution and fate of the company’s financial resources, improving theoperation efficiency and making most excellent configuration for funds, the amount of funds,their required time period and their sources should be well planned when diversified projectsare selected. Therefore, studying the corporate diversification from a financing point of viewhas both theoretical and practical value.In the present paper, the relationship between diversification and capital structure areelaborated from the points of view of internal capital markets, risk diversification and agencycosts based on the review of the existing theories of diversification and capital structure arereviewed. The basic situations of agricultural listed companies are introduced according to thenumber, scale, distribution area, listing life and operating performance; then the diversifiedoperation performance, the reasons for diversification of agricultural listed companies andtheir capital structure are analyzed for the sample companies in the period of2008-2010. Afterthat, the effects of diversification level on agricultural listed companies’ capital structure arediscussed using descriptive statistics and regression analysis methods. The sample companiesare classified into the business-oriented, related diversification and unrelated diversifiedenterprises based on their specialization rate and the associated ratio; and the effects ofdiversification on capital structure on studied under different companies.The following conclusions are obtained:1. The diversification levels of the enterprises in the sample were significantly negativelycorrelated to their asset-liability ratio, which indicates that the internal market theory hasplayed an important role in the diversification of agricultural listed enterprises in China.2. The diversification levels were positively correlated to long-term debt ratio.Enterprises with the higher diversification level tend to have more long-term debt. 3. In these business-oriented, related diversification and unrelated diversified enterprises,the diversification levels had no common relationship with capital structure. In the unrelateddiversified enterprises, the diversification levels had no obvious effect on the asset-liabilityratio and long-term debt ratio; and the profit abilities of those enterprises will decrease withthe deepening of enterprise diversification. Therefore, unrelated diversifications are notrecommended.The agricultural listed companies should optimize the diversification type based on theircore competitiveness and strengthen the company manager’s incentive and restraintmechanisms. And the national relevant departments should further optimize the financialenvironment and increase the supervision of agricultural listed companies, so as to promotethe long-term development for.agricultural listed companies.