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Ownership Structure and Corporate Diversification

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  • Zhang Yi

    (Peking University)

  • Li Xi

    (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.

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    Bibliographic Info

    Article provided by De Gruyter in its journal Business and Politics.

    Volume (Year): 8 (2006)
    Issue (Month): 1 (April)
    Pages: 1-21

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    Handle: RePEc:bpj:buspol:v:8:y:2006:i:1:n:4

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    Web page: http://www.degruyter.com

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    Web: http://www.degruyter.com/view/j/bap

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    Cited by:
    1. Ducassy, Isabelle & Prevot, Frédéric, 2010. "The effects of family dynamics on diversification strategy: Empirical evidence from French companies," Journal of Family Business Strategy, Elsevier, Elsevier, vol. 1(4), pages 224-235, December.

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