Study On Capital Market Risk Transmission And Governance Within H Group

With the rapid development of China’s economy,more and more enterprise groups have emerged,and the emergence of enterprise groups has led to the emergence of internal capital markets.The internal capital market has the function of forming capital flow and capital allocation within the enterprise.The emergence of internal capital market has both advantages and disadvantages for enterprise groups,which can reduce the external financing constraint of enterprises if used properly,and increase the risk of enterprises if used improperly.Through a large number of frequent internal related transactions,the information asymmetry between external investors,creditors,regulatory authorities and the group company is caused;secondly,once the internal capital market member companies have financial risks,the risks are likely to spread in the internal capital market,so that other members of the group are also in financial crisis,which will be transformed into the group’s business risk in serious cases.In serious cases,it may turn into the operating risk of the group enterprises,or even the road to bankruptcy reorganization.On January 30,2021,H Holdings officially announced the start of its bankruptcy reorganization after releasing three important announcements: "Alert Announcement on Creditors’ Application for Company Reorganization","Alert Announcement on Controlling Shareholders and Significant Shareholders’ Application for Reorganization" and "Alert Announcement on Major Subsidiaries’ Application for Reorganization".The result of H Holdings’ bankruptcy reorganization was not an overnight result,but a result of its rapid expansion through the internal capital market,which resulted in a geometric magnification of the company’s financial risks.As a group company with an early and fast-growing internal capital market,its internal capital market has many member companies,a complex shareholding structure and frequent operations of the internal capital market.Therefore,this paper selects H Group as the case study object,and explores four types of internal capital market operations of H Group,including intra-group capital lending,intra-group related guarantees,intragroup related transactions,and intra-group joint investment and mergers and acquisitions,and analyzes how these four types of internal capital market operations magnified the financial risks of H Group and led to the bankruptcy reorganization of the whole group.How H Group spread its risks to its member companies and to the whole group through these four modes of operation.Finally,in view of the risk transmission path of H Group’s internal capital market and its impact effects,we propose relevant suggestions and insights for the governance of internal capital market,including paying attention to the leverage ratio and capital structure of the group,establishing group credit rating,promoting transparent management of internal capital market operation,and paying attention to the functions and roles of group finance companies,in order to promote the healthy and orderly development of internal capital market of group enterprises in China.