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

TitleIndustrial diversification, partial privatization and firm valuation: Evidence from publicly listed firms in China
Authors
KeywordsDiversification
Partial privatization
Political costs
Corporate governance
China
Issue Date2008
PublisherElsevier. The Journal's web site is located at http://www.sciencedirect.com/science/journal/09291199
Citation
Journal of Corporate Finance, 2008, v. 14 n. 4, p. 405-417 How to Cite?
AbstractThis 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.
Persistent Identifierhttp://hdl.handle.net/10722/192326
ISSN
2015 Impact Factor: 1.286
2015 SCImago Journal Rankings: 1.446
ISI Accession Number ID

 

DC FieldValueLanguage
dc.contributor.authorLin, Cen_US
dc.contributor.authorSu, Den_US
dc.date.accessioned2013-10-24T01:49:57Z-
dc.date.available2013-10-24T01:49:57Z-
dc.date.issued2008en_US
dc.identifier.citationJournal of Corporate Finance, 2008, v. 14 n. 4, p. 405-417en_US
dc.identifier.issn0929-1199en_US
dc.identifier.urihttp://hdl.handle.net/10722/192326-
dc.description.abstractThis 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.-
dc.languageengen_US
dc.publisherElsevier. The Journal's web site is located at http://www.sciencedirect.com/science/journal/09291199-
dc.relation.ispartofJournal of Corporate Financeen_US
dc.rightsCreative Commons: Attribution 3.0 Hong Kong License-
dc.rightsNOTICE: this is the author’s version of a work that was accepted for publication in <Journal of Corporate Finance>. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in PUBLICATION, [VOL 14, ISSUE 4, (2008)] DOI 10.1016/j.jcorpfin.2008.05.001-
dc.subjectDiversification-
dc.subjectPartial privatization-
dc.subjectPolitical costs-
dc.subjectCorporate governance-
dc.subjectChina-
dc.titleIndustrial diversification, partial privatization and firm valuation: Evidence from publicly listed firms in Chinaen_US
dc.typeArticleen_US
dc.description.naturepreprint-
dc.identifier.doi10.1016/j.jcorpfin.2008.05.001en_US
dc.identifier.scopuseid_2-s2.0-50049093500en_US
dc.identifier.volume14en_US
dc.identifier.issue4en_US
dc.identifier.spage405en_US
dc.identifier.epage417en_US
dc.identifier.isiWOS:000259831600007-

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