A business group is a set of firms which are linked together by common ownership and other informal ties. As one type of the new organizations after Chinese economical reforms, business groups have caught great attention among the scholars. Based on institutional theory, resourcebased theory, resource dependence theory and agency theory, using a data set compiled largely from listed firms in Shanghai Securities Exchange and Shenzhen Securities Exchange, we analyze the effects of business group growth on diversification and firm profitability. The research results show that hypotheses are supported by the data.