The Research On Internal Capital Market Efficiency

Enterprise group always conduct capital allocation from both internal capitalmarket and external capital market. On one hand， the social capital is assigned tovarieties of enterprises from capital market, including the lending market andsecurities market, on the other hand, the group will allocate its own capital to everybranch or subsidiary, and then, to different investment projects.Internal capital allocation efficiency is the core issue of corporate finance, just thesame as the social capital allocation efficiency study to economics. However, researchon the efficiency of capital allocation has been concentrated in the external capitalmarket instead of the internal capital market all the time. This article aims at providinga new perspective for Chinese scholar’s study of capital market efficiency through anin-depth research on the internal capital market efficiency as well as its influencingfactors based on the H-share listed companies. Firstly, this paper analyzes theinfluencing factors of internal capital market efficiency, and reviews the internalcapital market efficiency measurement methods, that is, indirect measurement anddirect measurement, while the indirect measurement consists of investment and cashflow sensitivity, economic value added (EVA), Q sensitivity and cash flow sensitivity.In order to ensure the credibility of the measure results, this paper chooses the cashflow sensitivity method to conduct the study. And then, considering of the datacollection limit, this paper uses the cash flow sensitivity method to study the internalcapital market efficiency, and compared the capital efficiency between the state-ownedbusiness and the private enterprise. Finally, an empirical test is conducted to analysisthe influencing factors of internal capital market efficiency, which concluded that thereare three significant factors: the ratio of the largest shareholder, executive pay,independent directors and the number of segments.