Diversification and Firm Value: An Empirical Investigation of Diversification Premium Based on China's Stock-Market Listed Companies

摘要

Diversification and firm value has been one of the most active research areas in corporate finance in recent years. By testing various empirical implications of internal capital market theories, this paper investigates diversification and firm value using data constructed from a sample of China’s stock-market listed companies. The paper finds a statistically significant diversification premium— on average, diversified firms have higher Tobin’s q, market-to-book ratio and excess value measure than firms that are more focused. After controlling for factors that may affect firm value, such as size, intangibles, leverage and dividend policy, the paper finds that diversification premium ranges from 0.12 to 0.27. The paper also finds that high value firms are more likely to adopt diversification strategy and efficient internal capital markets may explain diversification premium for Chinese firms.