A Study On Diversification Strategy’s Effect On Internal Capital Market Efficiency

As with the increasing development of diversified company and enterprise group, diversification strategy and internal capital market become a hot topic. As a kind of strategy, diversification has effects on internal capital market efficiency. But whether it will help improve the efficiency or it will decrease the efficiency, has not yet come to a conclusion. So this paper takes tourism industry which has a "natural" diversification motivation for example, explores diversification’s effects on internal capital market efficiency. On one hand, this paper can enrich tourism industry’s research in the field of internal capital market, on the other hand, it can instruct tourism enterprises to choose the appropriate resource allocation strategy to improve the efficiency of internal capital market and increase its value.Based on vast amount of literature, this paper firstly theoretically analyzed diversification strategy’s effect on internal capital market from two aspects:the degree of diversification and the type of diversification. Then this paper put forward research hypothesis. Later, this paper selected13listed tourism companies as research object and collected these companies’related data from2007to2012, using descriptive statistical analysis method and panel regression method, empirically tested diversification strategy’s influence on internal capital market. This paper used the APS model to measure the internal capital market’s efficiency, use the Specialization Ratio (SR) and Diversified Entropy to measure the degree of diversification, use Related Ratio (RR) to measure diversified types. The empirical results show that:Firstly, tourism listed company’s internal capital market is effective as a whole, but there is a large ascension space; Secondly, as to tourism listed company’s degree of diversification, it is not very high. It is not excessive diversification, the variation among enterprises is a little bit big. As to the types of diversification, tourism enterprises mostly adopt related diversification strategy.Thirdly, the degree of diversification positively correlated with tourism enterprise’s internal capital market efficiency and those related diversified tourism enterprises’efficiency of internal capital market is higher than those unrelated diversified enterprises’.Fourth, the study also found that there are other factors affect internal capital market efficiency:the pay of top management and the board size has a positive effect on the efficiency of tourism enterprise’s internal capital market; whereas the separation degree of ownership and control, the asset size and the proportion of the biggest shareholder have a negative effect.Form the empirical results we can know that within a certain degree, the diversification strategy helps to enhance the efficiency of internal capital market, so companies need to choose the appropriate multiple strategies. Also, tourism enterprises need to establish effective governance mechanism and internal control mechanism in order to improve the efficiency of tourism enterprises’internal capital market.