Diversification Discount of Chinese Listed Corporations: Empirical Evidence Based on Agency Theory

This paper empirically examines the agency explanation of the diversification discount based on the static comparative and dynamic analysis, employing the panel-data fixed-effect model to control for the endogeneity of corporation governance, by the sample consisting of 614 Chinese listed corporations from year 2001 to 2004. The paper's new findings are that the governance and ownership structure differentials indicate the existence of two facets of agency conflicts in diversified firms compared to focused firms, which includes not only managers and controlling shareholders but controlling shareholders and minority shareholders; two facets of agency conflicts directly cause diversification discount; the balance of ownership identity and concentration and the board of directors effectively moderate the agency conflicts, and there is a downward trend in corporate diversification.