An empirical research on diversification strategy and capital structure of China listed companies

To a firm, diversification strategy sets "what to do", while financing solves "how to do". On the one hand, diversification strategy sets the development mode of the firm, and financing supports its implementation, on the other hand, the result of diversification strategy is also influenced by financing sources. So, capital structure and diversification strategy must have a close relation. However, the relative empirical study is rare. Therefore, it has great significance to study capital structure from the angle of diversification strategy. Based on the principle of minimizing the financing cost, this paper constructs a dynamic optimizing model of capital structure. We also use the data of 415 China listed companies from 2001 to 2003 to make multi-variable regression. We find that the degree of diversification has a positive relation with capital structure, which supports the theoretical analysis. Finally, this paper points that capital structure is not only a financial problem, which must be consistent with the long-term strategy of company.