Managerial ability, Corporate Diversification, and Financial Constraints: Evidence from Chinese listed firms

Abstract

Using a diversification strategy, companies may utilize all their capabilities or resources and attract new business from market segments not catered to earlier. The presence of capable and efficient managers improves the operational process and profitability of the company. Therefore, the purpose of this study is to investigate the relationship between the ability of managers and corporate diversification with an emphasis on the financial constraints of listed Chinese companies. For this purpose, in the present study, a sample containing 5832 cases of the company years for Chinese companies from 2002 to 2019 was employed. The research hypothesis was tested using multivariate regression and EVIEWS software. The research's first hypothesis showed a direct and significant relationship between managers' ability and corporate diversification. The second hypothesis results showed that financial constraints have an inverse effect on the relationship between managers' ability and company diversification so that financial constraints challenge financial resources and limit company policies.