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An increasing number of Chinese companies are now taking the form of the business group. The big business groups in China tend to have more state shares, be more heavily indebted, less profitable, and accumulating capital more slowly than non-group firms. The emergence of the business groups was an outcome of entry into new profitable business fields by the existing companies given that exit from the old business fields was not easy due to institutional constraints. In this case, entry or expansion into new business fields was often accompanied by asset diversion from old to new business fields conducted by new spin-off firms, leading to the creation of hybrid parent companies. The net effect of this kind of asset diversion is dubious because it was associated with asset striping and/or information hiding from the supervisory state agency. These hybrid form business groups are characterized by low long-term investment ratio and low weight of business income of the parent companies.
