Diversification and Value of Shanghai-Listed Manufacturing Companies
20 Pages Posted: 11 Jul 2005
Date Written: July 15, 2005
Using the information from the Shanghai-listed manufacturing firms, we find an increase in diversification over the period 2001-2003. The question may then be raised whether this benefits shareholders. Though researchers of developed countries find a negative effect of diversification, it may benefit shareholders in emerging markets. In our sample the diversified firms have lower market-to-book values of equity and lower Tobin's q's. Moreover multiple panel regressions with lagged corrections for interdependence all result in negative and often significant coefficients. Positive value effects of diversification that might be expected in the Chinese emerging market thus do not compensate for the negative effects in the manufacturing firms listed at the Shanghai Stock Exchange.
Keywords: Diversification, firm value, China, manufacturing firms, Shanghai Stock Exchange
JEL Classification: G32, G15
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