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Diversification of listed companies capacity for sustainable development

Author: NieRui From: www.yourpaper.net Posted: 2009-03-30 17:51:52 Read:
[Abstract] listed companies on Sustainable Development is not only related to the healthy growth of the listed company itself, but also directly affect the stability and development of the capital market. Corporate diversification and professional management as one of the factors that affect the sustainable development of enterprises, whether one is better, the industry has been debated. Research diversification and sustainable development capacity of the relationship between listed companies choose a reasonable business model, to achieve sustainable development has important strategic significance.
[Key words] listed companies; diversification; sustainable development

I. Introduction

Listed companies as the cornerstone of the securities market, sustainable development is not only related to the healthy growth of the listed company itself, but also directly affect the stability and development of the securities market. Listed companies to raise funds as the main body is the object of the investment, whether the excellent operating results and good growth will directly affect the size of the value of their investment. Therefore, the study of listed companies on Sustainable Development is not only related to the interests of the listed company itself, but also has important practical significance for the securities market as well as the Securities Investor.
There are many factors that affect the capacity for sustainable development, in general, including the main business of listed companies in which the boom of the industry, the company's business strategy mode is selected, the degree of perfection of the structure of listed companies, management's ability to manage corporate personnel development, and corporate culture. These factors can be divided into the external factors and internal factors. External factors influencing factors of the enterprise surroundings, are uncontrollable factors, such as the main business of the industry boom, industry policy, internal factors influencing factors are factors outside the control of enterprises. The internal factors constitute the core competitiveness of enterprises, the embodiment of the core competitiveness of enterprises. Due to the controllability of the internal factors, the company wants to improve the core competitiveness of enterprises, the main effort should focus on the improvement of the internal factors. The issues to be discussed by the author is that these internal factors - the company's business strategy mode selection problem, that is what is diversification or professional management to better promote the sustainable development of enterprises.

Second, domestic and international literature review

Diversification is a strategic choice of the world today in many large and medium-sized enterprises, but also the theoretical circles a hot business strategy research. Many scholars diversification affect the results of operations of the enterprise a lot of research, the basic point of view include:
Diversification can optimize the allocation of resources, help to improve business performance and corporate value and achieve sustainable development. Weston (1970) [1] that can through the diversification of the funds allocated by the corporate headquarters to the operating unit, to promote the transfer of resources to the effective operating unit. Hubbard and Palia (1999) [2] found that the rise diversified wave of mergers and acquisitions in the United States in the 1960s, the diversification accelerated the integration of the operation of the financial and management information, mergers and the stock of the merged enterprise showed a significant excess returns. Su Dong Wei (2004) [3] China before the end of 1999, listed on the 1026 company from 2000 to 2002, the financial statements carried out a thorough and meticulous investigation, found that significant diversification premium phenomenon in China's listed companies, a higher degree of diversification listed companies with a larger market capitalization - book value ratio, Tobin Q value and the excess value.
Diversification cause enterprises distracted, affecting the overall operation of the business, reducing the value of the business, and hinder the sustained and healthy development of the Company. Jensen (1986) [4] pointed out that the diversified management companies often can not accurately determine the future development of new industries and new products. Berger and Ofek (1995) [5] by comparing the operating unit should be added the total value of the value of the company, revealed that between 1986 and 1991, the average diversification bring 13% to 15% loss, and attribute them to the multi- enterprise overinvestment and cross-subsidization issues. Aggarwal and Samwick (2003) [6] theoretical models and empirical results show that the enterprise value is always inversely proportional to the degree of diversification. Lang and Stulz (1994) [7] study also showed that the diversification strategy will reduce the enterprise value. By the Yang Aiyi and Wei Ming (2002) [8] found that the number of listed companies in China has fallen into the "trap" of the diversification strategy, the main business of the decrease in the proportion of profits and the company's operating performance decline. Li Ling, Zhao Yu Gang (1998) [9] showed that the statistical data from 1997, the degree of diversification of China's listed companies have a negative impact on overall corporate profitability and corporate value size.
Diversification itself is neutral. Jin Xiaobin, et al (2002) [10] Matsusaka dynamic match - search model to explore the relationship between diversification decisions and Firm Characteristics and market incentives, that diversification itself is neutral, under competitive conditions to maximize the value of the the requirements of an act.
Depth the different degree of diversification or a different type of diversification of the company's capacity for sustainable development. Rumelt (1974) [11] that the limited diversification of related industries will improve the performance, excessive diversification may reduce the synergies have a negative impact on performance; Grant (1988) [12], who pointed out that, within the boundaries of a certain performance of the company and the number of operations had a positive relationship, but outside the boundaries of more and more as the business grows, the performance of the company downward trend.
As can be seen from the above analysis, due to the different choice of mathematical models, samples and analytical methods, the scholars on how diversification affect the company's capacity for sustainable development had a different perspective. Diversification for listed companies in China, however, in the end is positive or negative? I will be based the sustainability performance implementation of the diversification strategy of listed companies in China, through comparative analysis and analysis of empirical research methods, draw and analysis conclusion, in order for listed companies in the choice of business strategy the way to provide some ideas.

Third, the study design

(A) sample selection and removal
(1) taking into account the sample in the three years from 2002 to 2004 should be sustainable development, the author from all listed companies issued A shares, according to the weighted ROE indicators, select the weighted ROE is positive listed companies, a total of 824.
2 824 listed companies excluding contains the following factors: (1) from 2002 to 2004, the main business of the industry in which changes, in order to eliminate the impact of industry changes caused by changes in the performance; (2) 2002 2004 diversified the type of change; (3) incomplete data listed companies, such as the operating results of some listed companies are not in accordance with the industry disclosure. After screening a few times, I get the 551 sample companies meet the above criteria.

(B) indicators designed
Diversification indicators. There are many indicators measure the degree of diversification, there are three widely recognized: (1) specialization rate (SR), refers to the proportion of total sales of certain types of product sales; (2) the Gini - Xipi Sen index , referring to the share of the square of the proportion of main business income and the income of the enterprises in all sectors; (3) Shannon (Shannon) index that is obtained by use of the formula for entropy entropy to reflect a wide range of various industries distribution characteristics. Three diversification measure indicators, due to entropy theory and methods of measurement can be more scientific, and complete description of the degree of diversification, I will use the Shannon index to measure the degree of corporate diversification. To calculate the Shannon index, you must use the entropy method, in order to explore more deeply the different degree of diversification indicators of sustainable development capacity, I type of diversification broken down into related diversification, unrelated diversification and overall diversification, corresponding to the degree of diversification indicators to measure the general expression of entropy as follows:

2. Sustainable Development Index System. For the corporate sustainability specific understanding of the meaning of broad and narrow two levels. A broad sense that the sustainable development of listed companies include not only their own development, but also taking into account the social benefits created by the enterprise and social responsibility. The narrowly level just from their own operating conditions to consider that the measure of business results should not only focus on checking the current operating performance, but the stability and growth of the future performance should be included. Poor social benefits and social responsibility in a broad sense specific measure, the author of the sustainable development implications to consider a narrow level, the operating results of listed companies in recent years to evaluate the size of its capacity for sustainable development, and results of operations from the five aspects of business (profitability, management ability, solvency, capital structure, ability to grow) to be measured (shown in Table 1).
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