Evaluation Of The Efficiency Of Internal Capital Market In Privately-Run Business Group

Internal capital market has the advantage of easing financing constraints, and enhancing the efficiency of resource allocation. In China external capital market conditions are not perfect, so development of the enterprise group totally dependent on external capital market is not practical.In such an environment, through the operation of internal capital market to play its value creation effect become a necessary means for the enterprise group development. With the prevalence of diversification development strategy of enterprises, people began to research internal capital. However, the diversified development companies have found that they did not achieve the desired results, contrarily the ICM dragged down the pace of development. Then they began to cut off non-core business and re-embark on the road of professional development. At the same time, in China the ICM also does not play its positive effect, by contraries there are more negative effects. Combining with the situation of our country, no matter what kind of development strategy enterprise choose, specialization or diversification, how to curb the negative impact of the ICM in the process of enterprise development and play its positive role fully becoming one of the urgent tasks of theoretical research.This paper mainly comparative study internal capital market,operation model and its efficiency evaluation between specialized and diversified enterprises basing on JiangSu Wuzhong Industrial Co., Ltd. and Shanghai Fosun Pharmaceutical (Group) Co., Ltd. The article is divided into five parts:The first part is introduces the research background and significance, then interprets and summarizes the research methods, the paper structure and the main research content, and finally explains the main innovation of this paper and the limitations. The second part is a literature review of relevant research in the field, on the one hand, we simply summarized description of the concept and characteristics of specialization and diversification. on the other hand, we introduces the concept, existence, validity, invalidity of internal capital market at home and abroad, and finally describes the research results of interaction between specialization and diversification and internal capital market. Then paper extracts the problem to be studied in this article. The third part illustrates the theoretical basis of the research. The fourth part, as the case of Jiangsu Wuzhong and Shanghai Fosun, outlines the different strategic of the two companies, and analyzes the operation of internal capital markets in the development process. Then through internal capital efficiency measure model we measure and evalue two companies’ internal capital allocation efficiency, the research showed privately-run enterprise group with the internal capital market allocation of resources (specialization or diversification) is a single mode of operation,low efficiency. The diversified enterprise group more inclined to make investment decisions in accordance with the principles of the internal capital market, its internal investment closer to the external market. Although the short-term internal capital market is effective, long-term development of the enterprise may not be very profitable; the specialized enterprise groups’internal capital market is not effective in the short term, but such a choice is for more long-term development needs. The fifth part is the policy recommendations.