The Study On Optimization Of Financial Relations Between The Parent Company And The Subsidiary Company

In recent years, state-owned enterprises have been merging local enterprises increasingly. Li Rongrong, the director of SASAC, indicated that SASAC would actively support the central enterprises and local enterprises in strategic restructuring under the new situation。However, there have been some hidden risks in the process of merging. That is, the expected rate of return didn’t come true after merging, and the state-owned enterprises would even be confronted of the loss of state-owned assets. Moreover, local enterprises operated well before being merged, and began to go down after merging。Why did it happen? This paper probes into the issue from the angle of financial management through the case of S Grid Group holding P local electric power company. The research method is to induce some theoretical causes of the conflict of interest between parent companies and subsidiary companies by the analysis of an appropriate case. According to this, a series of financial measures are proposed, such as constructing the rational financial policy, and reconcile the conflict of interest。The paper includes five chapters.The first chapter is Introduction, it includes research background, research methods, main content, main contributions and results。The second chapter focuses on the theoretical basis for financial relations between the parent company and the subsidiary company。Three important theories, i.e. the principal-agent theory, the asymmetric information theory and the model theory for the Group Co. financial Management (including Centralized system, decentalized system and mixed-mode) are discussed. This part not only describes the background, the causes and the development of the three theories, but also analyzes their definition and discuss their own virtues and defects。The third chapter is the basic information of the case. Here S parent company and P subsidiary company are discussed. This part is about the current financial relation between the two companies, especially focusing on financial problems in it.Chapter four is the heart of the paper---the case study。Based on previous description and analysis, the study includes three stages. Firstly, find out the causes that gave rise to the financial problems existing between parent company and subsidiary company. We deduce that there are four causes, including budget management divorcing from the reality, financial oversight existing in name only, level dislocation of financial management, and no real common interest bringing the two companies into line. Secondly, we would propose five measures on how to optimize the financial relation between the parent and subsidiary companies, i.e. to coordinate the financial management goals of the parent and subsidiary companies by scientific budget management, to bring into better balance the relations between the two companies’ financial organization by improving the Chief-Financial-Officer appointment system, to strengthen the mutual financial supervision between parent and subsidiary companies by increasing the Group’s internal audit function, to take advantage of the prefecture-level corporate financial management functions by distinguishing the financial hierarchy of the parent and subsidiary companies, to promote management efficiency of the parent and subsidiary companies by designing advanced and reasonable assessment criteria. Thirdly, draw up the scheme for optimizing the parent-subsidiary company’s inner financial relationship. This scheme focuses on creating a kind of financial system, that is, centralization-oriented system with decentralization subsidiary, and thus build up the community of interest by the method of financial intensive management.The last chapter is conclusions, inspirations and limitations of the research.What makes this paper valuable is that it clearly shows the causes for the low rate of return after merging from the angle of financial management, and thus proposes appropriate and constructive measures. Its conclusion---the concrete financial scheme----could be of great value for preservation and increase of the value of state assets.