Diversification of Chinese Companies - An International Comparison

Abstract

Purpose - This paper provides a systematic comparison of the level of business diversification in China and eight other large economies for the 2001 to 2005 period. We investigate reasons why Chinese firms are more diversified than companies elsewhere. Design/methodology/approach - We collect data on the number of business segments in which publicly traded companies operate from the Thomson One Banker database. We analyze the data using nonparametric tests and regression analysis. Findings - The mean number of business segments per firm varies significantly by country. Notably, there is no evidence in our sample that emerging-market companies are systematically more diversified than their developed-market counterparts. In most countries, firms have become less diversified over time. However, there is no such trend in China. The level of diversification of Chinese enterprises does not vary over our study period (2001-2005), making Chinese firms the most diversified in our sample by 2005. China's growth rate does not seem to explain the higher level of firm diversification. However, we find that Chinese state-owned enterprises diversify their operations more aggressively than other Chinese firms. Research limitations/implications - Ownership data and business group affiliations were not available for all firms in our sample, making it difficult to control for these effects across economies. Practical implications - Government involvement in state-owned enterprises may be contributing to a divergence in the pattern of business diversification between China and other economies. Originality/value - This paper quantifies anecdotal evidence that Chinese firms are more diversified than similar firms in other countries.