Diversification of China's firms during economic transitions

Abstract

This study investigates the institutional specific diversification antecedents under the context of transitional economies in China and explores the diversification extent of Chinese firms. My primary inquiry is that: other than the economic efficiency considerations that may drive a firm to diversify, are there other factors that influence a firma??s diversification decision. Combining the institutional pressures arguments and the institutional transitions of China, I contend that SOEs and non-SOEs are faced with different institutional pressures and that SOEs are more likely to have high diversification extent. Combining the institutional capitals arguments and firm strategies during the economic transitions, I contend firms with strong institutional capitals are more likely to have high diversification extent. I compile a sample of Chinaa??s listed companies from 1997 to 2001 to conduct the empirical tests. The results from MLE random effects estimations provide support for the institutional capitals arguments, but not the institutional pressures arguments.