| Business group is an important enterprise organization form in Chinese national economy, whose economic strength and development ability should not be ignored in Chinese economy. With the business group’s maturing day after day, the internal capital market in a group plays an important role more and more. Then to study the internal capital market has become an inevitable choice to know the movement rules of the internal capital in a business group. As an important system arrangement within a business group, the business group governance plays a crucial role for the operation of the internal capital markets by the design of the governance structure and the implementation of the governance mechanism. The failure of the business group governance will affect the realizing of the internal capital market’s function seriously. At present, a lot of unhealthy phenomenon appears in China, in which the roles of the internal capital markets were restricted by the improper of business group governance. Sometimes the internal capital market even became the means of robbing the benefit, which damaged the value of the members in a group and the interests of the relevant investment bodies seriously and reduced the overall value of the business group eventually. To study the essence of a phenomenon should study the causes of this phenomenon at first. Therefore, there is an important significance to research the influence of the group’s governance factors on the internal capital market efficiency, for exploring the movement rules of internal capital in a business group, seeking the causes in the micro level of the low efficiency of capital allocation in China, and formulating measures to perfect the group governance and optimize the behavior in the internal capital market.As the system foundation to realize the interaction and cooperation of the members in a business group, the group governance is the guarantee for the orderly operation of the business group. So it will certainly affect various internal activities and interactions of the members in a group including internal capital financing and investing, and then affect the group’s internal capital operation and its efficiency. Based on this idea, this paper holds that the business group governance directly affects the operation and efficiency of the internal capital market by building the relationship of the trust and the cooperation between members in a group. That is to say, the analysis logic is built, which is "the business group governance——the trust and cooperation between members in a group——the operation and efficiency of internal capital market". This paper mainly discusses two problems. Firstly, in theories, what is the influence mechanism of the business group governance on the efficiency of internal capital market? This problem includes several parts concretely as followed:how does the internal capital market in a group operate? What is the content of the group governance? How do the concrete factors of the group governance affect different efficiency indexes of the internal capital market? Secondly, in practice, what is the overall status of the internal capital market efficiency in China? What are the specific factors of the group governance to affect the internal capital market efficiency in China?According to the above logical line, this paper contains several parts as follows:Firstly, the paper makes a theoritical analysis of how the business group governance affects the internal capital market efficiency. In the Chaper3, the paper discusses the operating mechanism and efficiency of the internal capital market in the group. In this part, the paper discusses the basic elements of the internal capital market’s operational mechanism in a group, including the subject and objects, operation process and rules, the mode of the capital’s centralized management and the specific ways of capital trade. Then the paper expounds the meaning and relation of the accumulation efficiency, allocation efficiency and pricing efficiency, and analyzes the possible low-efficiency behavior during the process of the internal capital market. In Chaper4, the paper analyzes the influence mechanism of the business group governance on the internal capital market efficiency based on the dual angle of the power balance and relationship coordination. In this part, after analyzing the multiple principal-agent relationship in a group, the paper puts forward that the relationship between the members in a group can be divided into formal relationship and informal relationship. Then the paper analyzes business group governance from two dimension of the power balance and relationship coordination, discusses the goal, the subject and objects of the group governance, and analyzes the content of the group governance. Then, the paper analyzes the influence mechanism of the business group governance on the internal capital market efficiency. After the general analysis, the paper respectively discusses the influence mechanism of the group governance based on the power balance and the group governance based on relationship coordination on the internal capital market efficiency.Secondly, the paper makes an empirical analysis of how the business group governance affects the internal capital market efficiency. Based on the theoretical analysis above, this paper makes the empirical research about the influence of the group governance on internal capital market efficiency by using the mathematical analysis method. Considering the availability of data and the universality of faction enterprises in China, this paper selects the pooled data of faction groups as the research sample. On the basis of theoretical analysis, this paper selects many factors of multiple levels as independent variables, involving the governance feature of the group’s external big shareholder, the governance feature of the parent company, the governance feature of the listed companies and relationship coordination factors. This paper selects the accumulation efficiency, allocation efficiency and pricing efficiency of the internal capital as dependent variable. Then it puts forward the theoretical hypothesis and builds a multiple regression model. In the empirical test, this paper evaluates the overall operation efficiency of faction groups in China and inspects the influence of the group’s governance factors on the different efficiency indicators of internal capital market respectively.On the basis of theoretical analysis, through the empirical study, this research finds that in Chinese faction groups the governance characteristics of the parent company are the leading factor among the influence factors of the business group governance on internal capital market efficiency. And the influence of the parent company on the internal capital market efficiency mainly plays a role by its holding position directly. The specific measures earried out by the parent company through the arrangement of governance structure and the operation of governance mechanism in the member corporations do not play a significant role to promote the efficiency of internal capital markets. The main results are shown below:Firstly, as the external shareholders in Chinese faction groups, the ultimate controlling shareholders play a limited role to improve the efficiency of internal capital market. There is not significant correlation between the nature of the ultimate controlling shareholders and the internal capital market efficiency. The level that the ultimate controlling shareholders control the parent company only plays a significant role for the allocation efficiency of internal capital, but does not have a significant impact on the accumulation efficiency and pricing efficiency of internal capital.Secondly, the parent company in Chinese faction groups has significant influence on the internal capital markets efficiency. Through its controlling status in the group, the parent company plays a significant role to improve the accumulation efficiency and the allocation efficiency of internal capital, but has obvious inhibitory effect for the pricing efficiency of internal capital. A higher separation degree between the control right and cash flow right of parent company for the listed company encourages the parent to transfer the funds from listed companies by using internal capital market, which improves the accumulation efficiency but reduces the allocation efficiency and pricing efficiency at the same time.Thirdly, the decision, supervision and incentive function reflected through listed companies’governance structure arrangement by parent company does not play a positive role for the effective operation of the internal capital market in Chinese faction groups. The directors in the listed companies appointted by the parent company significantly promotes the accumulation efficiency, but plays a significant inhibitory effect on the allocation efficiency of internal capital. The independent directors and the stockholding of management do not affect the internal capital market efficiency significantly.Fourthly, the personnel coordination mechanism does not play a significant role for the operation of the internal capital market in Chinese faction groups. The promotion of the chain directors for the accumulation efficiency, the allocation efficiency and the pricing efficiency of internal capital is not obvious. The innovation of this research includes some points which are listed below:Firstly, the paper analyzes the influence mechanism of the business group governance on the internal capital market efficiency based on the dual angle of the power balance and relationship coordination. In a stock-controlling group, the relationship of the property control should not be ignored, which exists in a group certainly. At the same time, the relationship coordination between the member companies in a group based the non-institutional factors is the foundation of the group’s sustainable development. This paper makes a logical analysis of the group governance from two dimensions of the power balance and relationship coordination, and disscusses the influence of the business group governance on the internal capital market efficiency based on the two dimensions.Secondly, this paper supplements the index of measuring the internal capital markets efficiency. Although optimizing the allocation of internal capital is the core function of the internal capital market, after discussing the operational mechanism of internal capital market, this paper thinks that the operation process of the internal capital market includes two stages of the capital accumulation and allocation, and the price mechanism plays some role at the same time. Therefore, in order to draw the whole picture of internal capital market’s operation, this paper uses three indexes to measure the internal capital market efficiency system, including the accumulation efficiency, the allocation efficiency and the pricing efficiency of internal capital.Thirdly, this paper selects the group indexes to make the empirical examination and takes the chain directors into account as the coordination factors between the members in the group. When making the empirical examination, this paper uses the group index as the research variables, which accords with the definition of internal capital market more. In the existing literature, the research has not been found which involves the influence of the chain directors on the internal capital market efficiency.
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