Based on the analysis of the panel data of China's listed firms from 2000 to 2006, this paper tests the relationship with SYS GMM through establishing the dynamic structure model. We find out that the theory of coinsurance and that of internal capital market both can not explain the change of special capital structure of China's listed firms.Capital structure and diversification strategy of China's listed firms interact each other. The increase of diversification might increase information asymmetry between the creditor and the company, then enhance the debt ability of the company, and cause the decrease of diversification while the increase of capital structure restricts diversification in return, and makes it decrease. In addition,diversification leads to the decline of the profit and size of the company, which shows that the increased debt financing from diversification is mainly transferred to the key industry of the company, but doesn't gain good performance. Thus the relationship between diversification and capital structure might not have the relationship of management strategy, and the influential course between diversification and capital structure might infringe the creditors' and investors'benefit.
2010, Vol. 7 
