The Endogenous Investigation between Corporate Diversification and Valuation: Evidence From Publicly Listed Firms in China

As the relationship between corporate diversification and performance is an interactional dynamic process, this paper focuses on the endogenous relationship between them by using Dabta constructed from a sample of China's stock-market listed companies from 2001 to 2008. Applying simultaneous equation models and controlling for factors such as firm's size, growth, area as well as industry characteristics, the empirical results indicate that Diversification discount change into a statistically significant diversification premium if the endogeneity of diversification is controlled, which diversified firms have higher Tobin'sq and ROA measure than firms that are more focused on average.