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Ownership Structure and Corporate Diversification

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  • Zhang Yi

    (Peking University)

  • Li Xi

    (Peking University)

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.

Suggested Citation

  • Zhang Yi & Li Xi, 2006. "Ownership Structure and Corporate Diversification," Business and Politics, De Gruyter, vol. 8(1), pages 1-21, April.
    • Handle: RePEc:bpj:buspol:v:8:y:2006:i:1:n:4
    DOI: 10.2202/1469-3569.1144
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    Cited by:

    1. Modibbo Abubakar, 2016. "Effect Of Audit Quality And Corporate Governance On Real Activities Manipulation In Nigerian Banks," Proceedings of Economics and Finance Conferences 4206739, International Institute of Social and Economic Sciences.
    2. Ducassy, Isabelle & Prevot, Frédéric, 2010. "The effects of family dynamics on diversification strategy: Empirical evidence from French companies," Journal of Family Business Strategy, Elsevier, vol. 1(4), pages 224-235, December.

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