Corporate Diversification in China: Causes and Consequences
We examine the diversification patterns of almost all publicly listed non-financial companies in China during the 2001 to 2005 period. More than 70 percent of the firms in our sample are diversified. We document that patterns of diversification strongly depend on firms' political connections. Former local bureaucrats are more likely than other CEOs to enter multiple industries. This effect is particularly pronounced in state-owned enterprises (SOEs) that operate in weak institutional environments. These companies are particularly prone to entering low-growth, low-profitability, and unrelated industries. Consequently, the performance effects of diversification differ sharply across SOEs and private firms. While the latter earn a premium from diversifying their operations, SOEs do not. Our results are consistent with the view that provincial and local governments push Chinese SOEs into unattractive sectors of the economy and that politically connected CEOs use their relationships to build corporate empires.
|Date of creation:||Apr 2008|
|Note:||June 2007, Preliminary draft|
|Contact details of provider:|| Postal: 2-1 Naka, Kunitachi, Tokyo 186-8603|
Web page: http://cei.ier.hit-u.ac.jp/
More information through EDIRC
When requesting a correction, please mention this item's handle: RePEc:hit:hitcei:2008-3. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Reiko Suzuki)
If references are entirely missing, you can add them using this form.