Ownership structure and corporate diversification strategies of Chinese business groups

Purpose – Diversified business groups have become active players in Chinese economy in the recent years. While several studies have been conducted to examine the role of external factors such as market imperfection on firms' decisions to diversify, relatively few efforts have been made to investigate the impact of internal factors such as ownership structures on such decision. Building on agency theory, this paper attempts to examine the impacts of ownership type and ownership concentration on Chinese business groups' diversification strategies. Design/methodology/approach – Year 2000 annual reports of publicly traded companies on Shenzhen Stock Exchange were used to identify business groups and collect data. Multiple regression analysis was used to conduct the data analysis. Findings – The results indicate that compared to other ownership structures, government‐owned business groups tend to be more diversified, while ownership concentration seems to be related to lower levels of diversification. Industry membership also plays a significant role, but previous performance is not significantly related to diversification levels. Implications and future study directions are also discussed. Originality/value – This study contributes to the understanding of the impact of ownership structure on companies' diversification strategies in a transitional economy such as China.