Pros and Cons of the Enterprises´ Industrial Diversification: Theoretical Analysis

The paper theoretically analyzes the pros and cons of the enterprisespsila industrial diversification and compares the differences between the two kinds of industrial diversification (related and unrelated diversification) at the aspects of the pros and cons above analyzed. The industrial diversification of enterprises may produce the following positive effects: dispersing the nonsystematic risk of industries; gaining the economies of scope and synthesis; saving the transaction costs; strengthening the market power; being a way of the enterprisespsila growing up; obtaining the information advantages and tax advantages, etc. And the negative effects produced by industrial diversification may be causing the agency problem; reducing the efficiency of operation; increasing the management costs and the difficulties in management; diffusing the resources and capabilities of the enterprise; causing the inefficiency of the internal capital market; bringing new risks, etc. There are certain differences between related diversification and unrelated diversification in the above-mentioned aspects of positive and negative effects of the enterprisespsila industrial diversification.