Empirical Study On The Industrial-Financial Combination Of Chinese Iron And Steel Enterprise Group

After the2008financial crisis, with the long-term high growth, China industrial enterprises suffered serious impact. Then the industrial-financial combination became one of the priority directions of large steel enterprise group development.Third Plenary Session of the Party’s eighteen proposed that development of mixed ownership and restructuring of state-owned capital investment company have become the new direction of development of state-owned enterprise reform.It is one of the state-owned enterprise reform priorities to make the groups be the industrial-financial integration consortium by the combination,then become the capital investment company. The industrial-financial combination is the development process of the industrial capital and the financial capital in the mutual penetration and influence, and it is the inevitable trend for market economy to develop to the definite stage. From the global view the combination represents the general trend, but how to get out of the road with Chinese characteristics is quite a challenge.In recent years, Baosteel Group Corporation and other Chinese steel companies have carried out the practice and exploration of the combination and accumulated some experience to provide realistic materials. Taking steel industry and Chinese steel listed corporation as an example for study, we want to study the action the integration making on the groups and how to implement the integration to promote economic utility better, which became the topic of concern in this research, and probably find and distinguish the general laws of the combination by different industries or different stages.Based on the above analysis, the content is as following:(1)This dissertation defines the concept of industry and finance conglomerate combination. Through compared with the definition of discrimination of the macro level (aspects of financial economics), the meso level (industry level) and micro-level (corporate level), the paper redefines the enterprise integration concept and the research object.(2)This dissertation is based on competitive advantage and business value perspective conglomerate mechanism of the combination analysis. Analysis of enterprise finance motive and effect of combined factors, the paper analyzes the combination mechanism of competitive advantage of industry and finance, based on the theories of resource view, core competence and the core competence of corporation, and the combination mechanism to promote the value of enterprises based on enterprise value theory. (3)This dissertation discusses the effectiveness of the combination conglomerate by building the cost-benefit model.Construction the cost-benefit model of the group combination, taking the operating performance and enterprise value as the criterion for evaluating the effectiveness,taking the stake as the explanatory variable,the pater analyzes the combination of valid, invalid and optimization.(4)This dissertation analyzes the combination situation of Chinese iron and steel conglomerate. Combining the characteristics of China’s steel industry, the paper discusses the direct impacts of the financial crisis in2008and the strategic dilemma after the crisis.Then the paper points out that the combination is one of the China iron and steel enterprises group prioritys direction of development, under the new situation, and analyzes the integration situation of the groups.(5) This dissertation carries out the empirical study about the effects of the combination of Chinese iron and steel groups. To taking China steel listed corporation as an example, according to the combination mechanism theroy, the paper puts forward the hypothesis and the empirical research designs. The study is mainly from two perspectives to test the impacts of the combination of China’s steel enterprises.One is based on Chinese steel enterprise shared by financial enterprises and financial shareholders as from the finance to the industry.The other is based on financial institutions shared by Chinese steel enterprises as from the industry to the finance.Through the study of the above, conclusions are stated as below:(1)The paper analyzes the integration mechanism from the angle of enterprise groups and proves that the combination of the groups can provide competitive advantages and enhance corporate value. Firstly, enterprise groups are drived by the combination, mainly to promote financial intermediation, reduce transaction costs; achieve multiple expansion, to obtain high profits; achieve synergies and other motives.Secondly, the effective combination is affected mainly by market factors, institutional factors, the level of economic development, enterprise size and competitiveness, holding equity ratio, the human factors, risk management level and other external condition factors. Thirdly, the combination can bring competitive advantage and improve enterprise value from the above theories.(2) The paper proposes the valid, invalid and optimization theory of the combination of industry and finance conglomerate.With the cost-benefit model, we find there are the effective area and the invalid region of the combination, and there exists a maximum value of the effective area. Furemore, in certain conditions, the combination of ownership exists certain reasonable intervals.If the enterprise ownership in the effective range, the implementation of enterprise integration is effective, otherwise is inefficient or invalid. The ownership of the integration should be adjusted to the best effective percentage or proportion, to achieve the best performance of the company.(3) The effects on the China iron and steel enterprise group are made by the combination from finance to industry.On the perspective of financial institutions investing entity enterprise, some verdicts as below. The combination not only has a positive direct effect on operating performance, enterprise value, but also has generated indirect positive effect on corporate value by improving performance. Between the combination and corporate performance, there is a non-linear relationship, where are some reasonably effective range. The combination does have the best combination point that can make the behavior of the combination on business performance, enterprise value to achieve maximum impact.(4) The effects on the China iron and steel enterprise group are made by the combination from industry to finance.On the perspective of entity enterprise investing financial institutions, some verdicts as below. In the shares of financial institutions modes, especially the financial company mode, the economic effect brought by the integration on the entity enterprise (parent company) can meet the cubic function of nonlinear.The integration of shares of financial institutions can bring the enterprises investment income significantly and improve the operating performance, but bring different effects on the indices by different mode. The mode of the investment company is relatively better. Laiwu Steel Group case shows that the integration of financial subsidiaries is the key to the effective combination, and the combination should be based on value co-creation in theory and be docked with the overall corporate strategic plan in practice.This article may be some innovations are stated as below.First of all, based on the Chinese steel industry and conglomerates perspective study the problem of the combination, it is easy to sort out different industry integration features and conducive to searching the common laws.Secondly, it presents enterprise group industry-finance combination invalid, effective and optimization theoretical perspectives. That Enterprises combine industry with finance is necessary to find the effective or optimal interval ownership, within which the shareholding ratio will be adjusted to obtain the best performance.Thirdly, it is proposed and constructed the empirical models of the combination that financial institutions take stakes in iron and steel enterprises, which proves that the integration can have multiple effects on operating performance, enterprise value. It proves the existence of the optimum combination point by using Loess nonparametric weighted polynomial regression method.Fourthly, it is proposed and constructed the empirical models of the combination that the iron and steel enterprises hold shares of financial institutions. It is found out that the economic effect brought by the integration on the entity enterprise (parent company) can meet the cubic function.This dissertation has some positive academic and practical significance as below.It is helpful to extend the industrial economics theory and provide a new method and idea for the steel industry to upgrade and adjust industrial structure, taken steel industry as an example. It is a positive guiding significance for using of financial regulation mechanism and means to promote the transformation and upgrading of traditional industries and provides a new approach for the new era of state-owned enterprise reform and development.It provides a new path to enhance the core competitiveness and the international competitiveness of industrial enterprises, and has a positive guiding significance and reference for China’s steel industry to step out of the current difficulties and large enterprise groups to carry out the "going out" strategy of internationalization. It also provides a new way to reorganize the groups into the state-owned capital investment company.