Soe dominance and corporate diversification : evidence from Chinese stock markets

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Soe dominance and corporate diversification : evidence from Chinese stock markets

 

Author: Chen, Yang
Title: Soe dominance and corporate diversification : evidence from Chinese stock markets
Degree: D.B.A.
Year: 2016
Subject: Government business enterprises -- China.
Business enterprises -- China.
Diversification in industry.
Hong Kong Polytechnic University -- Dissertations
Department: Faculty of Business
Pages: vi, 100 pages : color illustrations
Language: English
InnoPac Record: http://library.polyu.edu.hk/record=b2929076
URI: http://theses.lib.polyu.edu.hk/handle/200/8763
Abstract: This thesis advances the corporate diversification research by unveiling the within-country institutional heterogeneity of corporate diversification in China. In the thesis, I investigate how SOE (state-owned enterprise) dominance, defined as the market power of state-owned firms, drives non-SOE firms to diversify in China. In addition, the thesis examines how the political connections of chief executive officers (CEOs) facilitate non-SOE firms to diversify. Finally, this thesis examines the effect of corporate diversification on a firm's performance. To test my propositions, I address these issues within the empirical context of Chinese firms listed on the Shenzhen and Shanghai Main Board stock exchanges during the period 2008 to 2012, which provides an opportunity to deeply contextualize the corporate diversification literature into the Chinese context. Hypothesis I proposes the relationship between SOE dominance and the diversification of non-SOE firms. Drawing on institution-based view, I develop the arguments that SOE firms dominate the Chinese market because they are backed by the Chinese government and have natural advantages in obtaining the valuable resources (e.g., bank loans, licenses) controlled by the government, thus crowding out non-SOEs. The heavy government intervention in the market favors SOE firms; therefore, as SOE dominance increases, non-SOEs are forced to engage in diversification by relying more on the internal market. Hypothesis II proposes the relationship between CEOs' political connections and corporate diversification. Drawing on the resource-based view (RBV), I argue that CEOs' political connections assist non-SOE firms in overcoming the entry barriers to new industries, thus further contributing to corporate diversification. Hypothesis III proposes a positive relationship between corporate diversification and firm performance under SOE dominance, suggesting that corporate diversification generates a diversification premium for non-SOEs when firms are located in an SOE-dominated industry. The investigation of SOE dominance, identified as a unique institutional force (ideally "exogenous"), remedied a research gap to the existing literature. Through the insight into China's unique dual economy and SOE dominance, this study helps clarifying the role of government intervention and political connections on corporate diversification of private firms. This study could also enrich international evidences of diversification-performance relationship studies in transitional economies. Most importantly, this study may to some extent unveils the within-country institutional heterogeneity behind corporate diversification.

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