Research On The Internal Capital Market Allocative Efficiency In Business Group

Economic resources must be required allocative efficiency. As an economic resource, capital efficient allocation is important in modern economic development. Internal and external capital markets are both vital in the social capital allocation. Ever since the internal capital markets theory was proposed in the 1970’s,internal capital market has become a hot research field. No matter in theory or in practice, the research findings of internal capital market is inconsistent.With the reform and open-up policy in China, the business groups developing by merge and acquisition have become the leading force in the national economy. With the development of business groups in China, the internal capital allocation between corporate headquarters and subsidiaries have been focused on. At the same time, ultimate controllers of some private -controlled companies in our securitis markets have established a series of "faction enterprises"in pyramid structure, such as"Delong", "Fuxing", "Wanxiang", "Tuopu", "Hongyi"and"Sanjiu", etc, capital allocation between headquarters and subsidiaries including listed and non-listed companies and within subsidiaries is active.So, whether the internal capital market is existed in practice? If it exists, whether the internal capital market is efficient or not? Which factors affecting the internal capital market allocative efficiency? What measures should we take for its improvement? These problems should be solved, which is the starting point of this paper.This paper analyzes the reason and development of the internal market within business groups, and empirical evidence based on Chinese faction enterprises in pyramid structure to demonstrate the existence and efficiency of internal capital market in business groups, with theoretical analysis and empirical research method. According the research findings, we raise several recommendations.Specifically, this paper includes three parts altogether:the first part is the literature review, the development of the internal capital markets in business groups and theoretical basis. Then weexpounds the development of internal capital market in enterprise groups based on the special system background in China and introduces the theoretical basis of this article, including the second chapter and the third chapter. The second part is the empirical research part, using the method of cash flow sensitivity, Chinese faction enterprises in pyramid structure as the research object, examining the existence and the efficiency of the internal capital markets and the impact of the morphological characteristics of the pyramid shareholding structure including the fourth chapter and the fifth chapter. The last part is the study conclusion and policy recommendations. Content of each chapter is as follows:Chapter One, Introduction. Elaborate the background, purpose and meaning of this paper. Meanwhile, explain the contents of this study and the article structure. Then, present innovation of the article based on preceding research and possible shortcomings.Chapter Two, Literature review. This chapter summarizes the literature review of the internal capital market in enterprise groups and the pyramid shareholding structure:the first part summarizes the literature review of the internal capital market in enterprise groups, including the internal capital market theory, the relation between the internal and external capital markets, and the existence and efficiency of internal capital markets. The second part summarizes the literature review of the pyramid shareholding structure, including the connotation, the existence and the causes of the pyramid shareholding structure.Chapter Three, the development and theoretical basis of the internal capital market of the pyramid fraction enterprises groups in our country. Based on the literature review, we first analyzes several major reasons for the formation of internal capital market in business groups under the Chinese special system background. Then we summarize the development of the internal capital market of the pyramid fraction enterprises in our country. At last, we expounds the theoretical basis of this article.Chapter Four, the empirical research and explanation of the existence and efficiency of the internal capital market in enterprise group. In this chapter, from the perspective of the listed company, we test the existence of an active internal capital markets in the pyramid fraction enterprises groups. And according to the nature of equity, the samples were divided into the central government control, local government control as well as the private control, measuring the allocation efficiency of internal capital markets respectively and making the comparative analysis. The first section is the research design, expounding the selection of samples and data sources, the definition of research variables and the empirical model; The second section is the statistics of samples and the analysis of the empirical results; The third section is a summary of this chapter.Chapter Five, the influence of the shape of the pyramid shareholding structure on the internal capital market allocation efficiency. Based on the research conclusion of chapter 4, we examine the influence of the shape of the pyramid shareholding structure on the internal capital market allocation efficiency. The first section is the research hypothesis; The second section is the research design; The third section is the empirical result analysis; The fourth section is robustness test; The fifth section is the summary of this chapter.Chapter Sixth, the conclusion and policy recommendations. First, we summarize the conclusions of this study. Then raise several suggestions according to the problems.