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Relationship between Diversification, Institutional Environment and Growth: A Study of Agricultural Companies in China

Author

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  • Haixia Zuo

    (School of Economics and Management, Shihezi University, Shihezi 832003, China)

  • Wanming Li

    (School of Economics and Management, Shihezi University, Shihezi 832003, China)

  • Syed Shah Alam

    (Graduate School of Business, Universiti Kebangsaan Malaysia (UKM), Bangi 43600, Malaysia)

Abstract

China’s economic growth has been heavily driven by its agriculture-related industries. This growth has been attributed to several factors, including government policies, technological advancements, and changing consumer preferences. This research aims to shed light on the underlying mechanisms that have enabled agriculture-related listed companies to thrive in China’s rapidly evolving economic landscape. Specifically, this study examines the role of the institutional environment, diversification strategy, and Confucian culture in the growth of these companies. Based on the institutional basic view theory, transaction cost theory, principal–agent theory, brand theory, and enterprise growth theory, this study uses empirical research to analyse the diversification strategy and growth of 204 agriculture-related listed companies from 2010 to 2019. The study selected companies listed as Class A in agriculture, forestry, animal husbandry, and fishery with complete data and more than three years of history. The selection also covered those whose income from agriculture accounted for more than 50% of the total in 2021, or those with the highest income related to agriculture accounting for over 30% of the total income. The collected data is analysed with SPSS and Stata. The results showed that the formal institutional environment significantly suppresses the diversification strategy of agriculture-related listed companies, while the Confucian culture in the informal institutional environment significantly promotes it. The interaction between the formal and informal institutional environments has a complementary effect on the choice of diversification strategy. The study also finds that diversification strategy significantly suppresses the growth of agriculture-related listed companies, and the formal institutional environment has a more significant inhibitory effect on the diversification strategy of agriculture-related listed companies. In the informal institutional environment, Confucian culture plays a more significant role in promoting the diversification strategy of agriculture-related listed companies. The output of this study is an empirical investigation of the level of institutional setting and diversity production, which could aid in sustainable development and revitalisation of rural communities. Applying the results of this study could help managers anticipate future policy changes and adjust their strategies accordingly, while also assisting companies in developing new products and services that meet changing demand.

Suggested Citation

  • Haixia Zuo & Wanming Li & Syed Shah Alam, 2023. "Relationship between Diversification, Institutional Environment and Growth: A Study of Agricultural Companies in China," Sustainability, MDPI, vol. 15(7), pages 1-25, April.
    • Handle: RePEc:gam:jsusta:v:15:y:2023:i:7:p:6216-:d:1115906
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    References listed on IDEAS

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