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Identifier to cite or link to this item: https://hdl.handle.net/10086/29278

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Title
Corporate Diversification in China: Causes and Consequences
Creator
Creator Name
Fan, Joseph P.H. Fan, Joseph P.H.
Affiliation
Affiliation Name
School of Business Administration, The Chinese University of Hong Kong
Creator Name
Huang, Jun Huang, Jun
Affiliation
Affiliation Name
School of Accountancy, Shanghai University of Finance & Economics
The Chinese University of Hong Kong
Creator Name
Oberholzer-Gee, Felix Oberholzer-Gee, Felix
Affiliation
Affiliation Name
Strategy Unit, Harvard Business School
Creator Name
Zhao, Mengxin Zhao, Mengxin
Affiliation
Affiliation Name
Department of Finance, Bentley College
Chinese University of Hong Kong
Editor
Contributor Name
Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University
Affiliation
Affiliation Name
Institute of Economic Research, Hitotsubashi University
Key Word
Corporate Diversification
Institutions
China
JEL
D23
G32
G38
K42
P26
P31
Abstract
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.
Description
June 2007
Preliminary draft
Publisher
Institute of Economic Research, Hitotsubashi University
Issued Date
2008-04
Language
English(eng)
Resource Type
technical report
Version Type
VoR
Is Part OfRelation -
Related Title
CEI Working Paper Series ; No. 2008-3
Relation
Related Identifier
URI
  http://cei.ier.hit-u.ac.jp/index.html
NCID
AA11590659
Number of Pages
37
Appears in Collections
CEI Working Paper Series
URL
https://hdl.handle.net/10086/29278