Research On The Influence Of Chinese Listed Real Estate Enterprises’Diversification Strategy On Corporate Risk

When an enterprise has reached business mature stage,it would choose to enter other industries in order to expand markets and spread risks,which is called diversification strategy.In recent years,there have been more and more enterprises carrying out this strategy.However,academia has not reach any consensus on the impact of diversification strategy on corporate risk.According to those results achieved,the impact of diversification on corporate risk depends on market conditions,industries and times.The real estate industry in China is closely related to the national economy and is very important to people’s livelihood.It is China’s pillar industry.China’s real estate industry started not long ago and has not formed a mature system.The development of this industry is not only affected by market supply and demand,but also by the country’s macro policies and the overall economic situation.Faced with fierce competition and high investment risk within the industry,more and more real estate enterprises choose to carry out the diversified strategy.On one hand,this strategy can spread risks of operating business in one single industry.On the other hand,it causes risks when entering a new industry and conducting a new business.Therefore,under current market situation,whether the diversification strategy in real estate industry reduces corporate risk or not is worth studying.Based on the research at home and abroad,this paper studies the relationship between diversification and corporate risk of real estate listed companies in China,combining with the situation and history of real estate industry.In the theoretical part,this paper first introduces the concept of diversification strategy and corporate risk including their measurement method and specific classification,and then combs the researches on the diversification strategy at home and abroad,analyzes the current research status.The theory of the relationship between diversification and corporate risk is introduced as well.Afterwards,this paper analyses the history of China’s real estate and its diversification.In the empirical part,this paper studies the correlation between diversification in real estate industry and corporate risk by the multiple regression model which is sampled with panel data of enterprises from 2013 to 2015.During the study,the degree of diversification is measured by Herfindahl index,and the corporate risk contains non-systematic risk which is measured by Rate of Return on Common Stockholders’ Equity and systematic risk measured by Beta Coefficient.In order to eliminate the interference of other factors on the results,asset,debt to assets ratio and listed years are introduced as control variables.The results of this study show that the degree of diversification of real estate enterprises is negatively correlated with systematic risk,but positively correlated with systemic risk,that is,the higher the degree of diversification,the higher the non-systematic risk and the lower the systematic risk.Among four types of diversified enterprises,related business faces the lowest non-systematic risk while dominant business faces the lowest systematic risk.Unrelated business faces high risks not only non-systematic but also systematic.In view of the results of this study,this paper puts forward some suggestions on the diversification of real estate enterprises in the last chapter.This paper suggests that diversified enterprises should pay attention to the improvement of core competitiveness,make cautious decisions while conducting diversification,strengthen internal management and improve operational efficiency.