Industrial diversification, partial privatization and firm valuation: Evidence from publicly listed firms in China

By Chen Lin, Dongwei Su. 2008

127 citations recorded by the source corpus.

Abstract This paper investigates the relationship between industrial diversification and firm valuation in a sample of 816 publicly listed firms in China. It contributes to the literature in three ways. First, it is one of the first studies of diversification and firm value in an emerging market dominated by partially privatized firms. Second, it explores the determinants of corporate diversification by considering some unique aspects of the agency and political conflicts inherent in China's transition toward a market economy. Third, it employs a number of empirical methodologies (instrumental variables estimation, the Heckman self-selection model, and propensity score matching) to examine the relationship between diversification and firm value. The paper finds that when the decision to diversify is modeled as an endogenous choice based on firm characteristics, multi-segment firms have significantly higher Tobin's q than single-segment firms, even after controlling for factors such as ownership structure, ownership concentration, and growth opportunities. In addition, government-controlled multi-segment firms have lower Tobin's q than non-government-controlled multi-segment firms, providing evidence in support of the political cost hypothesis of diversification. Moreover, non-government-controlled firms in growth industries that perform better are more likely to diversify. Overall, our results illustrate that the valuation effect of diversification depends on government control.

Subfields: Accounting, Economics and Econometrics, Strategy and Management

View Paper: https://www.semanticscholar.org/paper/6bea5d1e23a947a80346f43199d45fa9b4b6c3d9

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Citations in the corpus

Ownership Structure and Firm Performance: Evidence from Vietnamese Listed Firms (2016, background): “Tobin’s Q is a popular measure of firm performance in empirical studies in corporate finance (Lang & Stulz, 1994; Berger & Ofek, 1995; Fukui & Ushijima, 2007; Lin & Su, 2008; Dey & Banerjee, 2011).”
Corporate cash holding and firm value (2010, methodology): “However, this result is in line with Lin and Su (2008), who also find a negative relation for growth opportunities. This result implies that firms with higher growth opportunities present a lower value on the stock market. This might be explained because firms with more growth opportunities could fa”
Corporate cash holding and firm value (2013, background): “However, this result is in line with Lin and Su (2008), who also find a negative relation for growth opportunities.”
Leverage and investment under a state-owned bank lending environment : evidence from China (2008, background): “As a result, the majority of China’s listed firms are controlled by state shareholders who retain their dominant control over the listed firms through their ownership of about two-thirds of the total equity in the form of non-tradable state-owned shares (Firth et al., 2006; Lin and Su, 2008).”
The relationship among information asymmetry, dividend policy and ownership structure (2017, background): “The split share structure has caused many problems (Sun and Tong, 2003; Lin and Su, 2008), including conflicts of interest between the holders of tradable and non-tradable shares, and hence the expropriation of benefits by non-tradable shareholders (mainly the controlling shareholders) at the…”
Shock-Based Causal Inference in Corporate Finance and Accounting Research (2015, methodology): “See, e.g., Armstrong et al. (2010); Lin and Su (2008), Murphy and Sandino (2010), and Stuart and Yim (2010).”