Diversification Strategy,Internal Control And Firm Performance

After the financial crisis,All industries are damaged to some extent.Markowitz’s portfolio theory was be brought up again;In order to strengthen the ability of the enterprise to deal with the management risk,Many companies are starting to expand their business to different industries.In practice,Many companies choose a Diversification strategy;But the relationship between diversif ication and firm performance is one of the controversial topics in the financial f ield.One side,Diversif ication strategy can diversify enterprise investment,help enterprises to obtain greater market and improve enterprise performance;On the other side,Managers may choose a Diversif ication strategy for personal objective,Diversificat ion strategy may not be able to overcome the low efficiency of the external market,Instead,it is possible to generate agency problems,leading to the enterprise management confusion,over investment and other issues,which leads to the reduction of firm performance.Meanwhile,Internal control system as an important corporate governance mechanism,The quality of internal control in enterprises determines the survival and development of enterprises to some extent.Therefore,it obtains more and more attention by scholars,enterprises and government departments.In recent years,Our country has promulgated many laws and regulations related to the internal control system,Committed to building a sound internal control system for enterprises.Therefore,The effect of diversif ication on firm performance is inconclusive,And internal control system as an important corporate governance mechanism,The internal control system is bound to have an impact on the relat ionship between diversif ication and corporate value.The paper used the gem listed companies of Shanghai and Shenzhen stock exchange from 2010 to 2014 as samples,The enterprise performance as the explained variable,Establish a mult iple regression model to examine the relationship between diversification strategy,internal control system and firm performance.Empir ical results show that: There is a significant correlation between the degree of diversif ication and the quality of internal control of sample companies.Firstly,The degree of diversif ication is negatively correlated with firm performance,And the negative effects of the diversif ication of the non state –owned companies on the performance of enterprises is more obvious;It shows that diversification will reduce the enterprise’s performance,and the ownership structure will affect the diversification discount effect.Secondly,The quality of internal control is positively correlated with firm performance,And the positively effects of the internal control quality of the non state –owned companies is more obvious.High quality internal control system can improve enterprise performance.Meanwhile,The internal control system of higher quality can alleviate the negat ive relat ionship between diversif ication and corporate performance,So it is very important to establish and perfect the internal control system and improve the quality of internal control.