Research On The Relationship Between Enterprises And Government, Diversification Of Investment And Its Economic Consequences

Diversification strategy is a common phenomenon among the listed companies in our country under the background of transition economics. However, diversification strategy in different types of companies leads to different economic consequences. Where in the developed areas, we are more likely to see the diversification strategy plays an important role in the private listed company and leads to good performance. On the contrary, it is easier to say the bad performance and the negative impact which cause by the diversification strategy in the state-owned listed companies in the underdeveloped areas. How did this happen? In this paper, we’d like to answer this question. We will start from the perspective of motivation behavior, taking the background of our country system under consideration, combing with the agency theory, diversified investment theory and governance theory to deeply answer this problem.In this paper, we choose the local listed companies as the research objects, we also use the theoretical analysis and empirical research method to study the different effect of diversification strategy affected by government intervention in different types of company and different areas.We find out that the effect depends on the investment behavior of the company, when enterprises take the initiative to choose diversification, business performance will be improved, when affected by the government and enterprise in the passive diversification often leads to diversification discount effect. Among it, relationship between government and enterprises have significant regulation effect. The more stronger of the relationship, the higher degree of diversification, besides, the relationship will increase the premium or discount the effect of diversification. Specifically speaking, when in the developed areas, the private enterprises has the least likely to the government intervene, and the stronger of the relationship can bring significant diversification premium effect. When in the underdeveloped areas, the state-owned enterprises has more likely to the government intervene, and the stronger of the relationship can bring significant effect of passive diversification discount.This paper reveals how the relationship between government and enterprises affects the consequence of the diversification strategy. It helps the scholars understand the motivation of diversification behavior and its consequences, it also can enrich the financial research documents of diversification strategy in the enterprises. Besides, it provides the basis to make relevant decisions for the regulators, investors and creditors.In the end of this paper, we have some suggestions. First of all, we suggest the enterprises should profoundly realize the extension influence of diversification to choose related or unrelated diversification; secondly, under the special domestic economic and political system, the political relationship plays an important role in the operation of company, we should reform deeper on this relationship,reduce intervention to the enterprises, enhance the independent operation of the enterprises, especially in the underdeveloped areas of state-owned enterprises. The last but not the least, in the developed areas, government should actively deepening the reform of promoting, establishing and perfecting the legal and economy system, to provide a good and orderly external competitive environment for the development of enterprises.