A Study on the Reciprocal Relationship between Strategic Resource, Diversification Strategy and Capital Structure

Based on the panel data of 762 listed companies in China from 2003-2006, this paper analyzed the relationship between a firm´s strategic resource, diversification strategies and its capital structure by establishing a simultaneous equation model. Our empirical results show that strategic resource and diversification strategies significantly affect capital structure. In turn, capital structure affects the investment on strategic resource and the choice of diversification strategies. Capital structure and strategic resource, diversification strategies are reciprocally interrelated.