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Ownership Structure and Corporate Diversification

Published online by Cambridge University Press:  20 January 2017

Yi Zhang  and
Xi Li
Yi Zhang
Affiliation:
Peking University
Xi Li
Affiliation:
Peking University
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Abstract

This paper examines the motivation and impact of corporate diversification in Chinese listed firms. We find that in local government owned-firms there is a non-linear relationship between the level of firm diversification and state ownership. As state ownership increases from zero, the level of diversification decreases. After state ownership reaches a certain level, the level of diversification increases as state ownership increases. There is no evidence that ownership is related to corporate diversification in non-state-owned firms or central government-owned firms. We also document that diversification is negatively related to firm performance in local government-owned firms. However, there is no evidence that diversification is negatively related to the firm performance in non-state-owned firms or central government-owned firms. Our findings suggest that agency problems are responsible for local government owned-firms taking value-reducing diversification strategies.

Keywords

ownershipdiversificationfirm performancestate-owned
Type
Article
Information
Business and Politics , Volume 8 , Issue 1 , April 2006 , pp. 1 - 19
Copyright
Copyright © V.K. Aggarwal 2006 and published under exclusive license to Cambridge University Press 

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