Research On Diversiifcation Discount And The Efficiency Of Internal Capital Market: A Transaction Cost Perspective

Establish diversified company one of the most important reason is the internalcapital market on the capital allocation efficiency is higher, which can increase theenterprise value.From the enterprise development history and the reality, corporatediversification is one of the important development strategy for many enterprises, inthe most developed countries such as Europe and the United States are abundant anddiversified company dominated, group company status in the emerging marketcountries even more significant.Chinese enterprises to scale expansion and implementdiversification strategy is also common practice.Corporate diversification, however,was not always get positive market, there are a lot of once appeared in the decline ofthe enterprise of diversified company, diversified trend in developed countries beganto abate, split and outsourcing become the new tide.Chinese enterprises also existafter diversified expansion of financial deterioration or even closing theirdoors.Internal capital market allocation advantage still exist?China enterprise still canincrease the enterprise value through diversified company?How to better play to thepositive role of internal capital markets?These are the urgent need to study the realityof the problem.Enterprise value is one of the themes of corporate finance research, the companydiversified influence on corporate value is an important research topic in thesubject.Since the1990s, a large number of relevant empirical research literatureshows that corporate diversification will damage the enterprise value, there issignificant diversification discount or phenomenon.So far, however, this conclusionlong-standing dispute, has not yet form a unanimous conclusion.Internal capitalmarkets Angle of view to explain the company diversified causes, diversifiedcompany advantage and diversification discount occupies a significant place, on thewhole, with diversified company layer (mainly group company as the object) researchis given priority to, and more focus on enterprise internal environment influence ondiversification discount, less influence on diversified business layer and the externalenvironment analysis.At the same time, the domestic research literature focus ondiversification discount heterogeneity problem has just started.In order to certify the above analysis, this paper selected the Chinese Shanghaiand shenzhen stock exchangelisted companies from2005to2010, a total of7575samples data, in addition to using the mainstream business diversification in the research literature level and enterprise value, special designed to industry differencesand different stage of economic cycle in two ways the sample data is divided into highmarket transaction costs and low market transaction cost categories, and can throughthe empirical results of the two groups are compared and diversification discountlevel., unlike previous studies, the results show that corporate diversification level isnot high in China, corporate diversification level and enterprise value in general isinverted "U" type curve relationship, but relatively high external capital markettransaction cost industry as well as the external capital market depression, the lowlevel of diversification discount.The findings may partly explain why past researchthere are many contradictions diversification discount or differentiation as a result, atthe same time also with diversification and specialization company more matches thereality of the existence and development at the same time.Based on the above researchresults, this paper further whether and how to choose the diversification strategy ofChina’s companies, diversified company how to better play to the internal capitalmarket advantage and enhance the enterprise value put forward the countermeasuresand Suggestions.In this paper, the research for further study on the internal capital marketefficiency has enriched the theoretical basis;Help to reveal the company diversifiedinfluence mechanism and path of enterprise value;Enrich and develop the theory oftransaction cost in the range of application in the field of corporatefinance.Significance in practice, this paper helps to choose the diversification ofChinese listed companies, fully understand the internal capital markets in emergingmarkets and mature markets, economic cycle at different stages and in differentindustries, the phenomenon of the diversification discount is different, the effectiveuse of internal and external capital market financing function, realizing continuous, tocreate enterprise value also helps to macroeconomic management and reasonableselection and use of industrial policy, promote the healthy development of the realeconomy and financial industry.The specific content of this paper is as follows:First put forward the concept of internal capital market and the existing reason oftransaction cost theory has been pay attention to weigh the enterprise internal andexternal trade environment, however, for a long time in the domestic research in thisfield have been referred to as literature more long stay in comparison of scatteredlevel, but the lack of system theory analysis and empirical test.Clear the perspective of transaction cost analysis to analysis the internal capital market efficiency and therelationship between the diversification discount, and more emphasis on the analysisof the external capital market transaction costs.In this paper, the basic theoreticalframework and research hypothesis, is whether the internal capital market advantagescapital allocation is an important factor of diversification premium or discount, andthis advantage exists and the degree of size compared with the enterprise internal andexternal transaction cost allocation, internal capital market relative to the externalcapital market transaction cost is lower, the internal capital market more effectively,improve enterprise value, the more obvious the effect of diversification.In this paper,the research for further study on the internal capital market efficiency has enriched thetheoretical basis;Help to reveal the company diversified influence mechanism andpath of enterprise value;Enrich and develop the theory of transaction cost in the rangeof application in the field of corporate finance.Significance in practice, this paperhelps to choose the diversification of Chinese listed companies, fully understand theinternal capital markets in emerging markets and mature markets, economic cycle atdifferent stages and in different industries, the phenomenon of the diversificationdiscount is different, the effective use of internal and external capital market financingfunction, realizing continuous, to create enterprise value also helps to macroeconomicmanagement and reasonable selection and use of industrial policy, promote thehealthy development of the real economy and financial industry.The specific contentof this paper is as follows:First of all, in this paper, the advantage of internal capital market allocation ofsources and influencing factors are analyzed in the perspective of transaction costtheory.Have internal capital market is a diversified company compared with theprofessional company with unique advantages, internal capital market is moreefficient than external capital markets, internal capital markets for capital allocationefficiency is higher, also can rise to reduce financial risk, increasing the debt capacityand reducing taxes, and other advantages, so the company can create enterprise valuediversification.Diversified company through the establishment of internal capitalmarket is to reduce the role of market-oriented transaction costs, can create enterprisevalue.Economic cycle, regional capital market maturity and industry differences willaffect the external capital market transaction costs, external capital market transactioncost is higher, the more efficient internal capital markets., however, with the improvement of corporate diversification level, internal capital markets to reduce therole of market-oriented transaction costs by agency problems gradually, internalrent-seeking, coordination problems such as the management of transaction costs,diversified companies will through cross cross subsidy "exploitation" high efficiencyto division, low efficiency of funds allocated to the business department, or becausethe power struggle between department and agency problems lead to capital allocationis actually inefficient and even invalid, so the company diversified ability to createenterprise value will drop, excessive diversification will bring the diversificationdiscount level.Problems as a result, the company diversified the optimal level, thecompany between diversification and corporate value should be inverted "U" typecurve relationship.Then, in order to verify the above theoretical analysis and the researchhypothesis, the diversification and the enterprise value of China’s listed companies asa whole for data analysis, this paper adopts two ways to measure the external capitalmarket transaction cost level.The first is based on industry r&d intensity of listedcompanies can be divided into two types of high and new technology industry andmature industry.Because of the high and new technology industry through the externalmarket financing are in danger of core information leakage, external investors facefailure probability is high and it is difficult to understand the core information ofinvestment projects, can therefore be regarded as external capital market transactionscosts high industry.The second is according to the different economic cycle, thecapital market depression as the condition of high external capital market transactioncosts.Because the capital market boom enterprise external financing difficulty is small,low level of financing constraints, and the capital market depression individual andinstitutional investors will reduce investment, Banks and other financial institutions ismore cautious on loans, higher level of financing constraints.Through the above twoways formed on the basis of transaction cost divided into two groups, separatelydiversification level and enterprise value relations of statistical analysis andeconometric analysis.Econometric analysis used in the management fees on behalf ofthe internal management level and the corporate governance data transaction costlevel.The research results show that corporate diversification level with boundary,after more than a certain level the two negative correlation.High and new technology industry company diversification level is relatively higher, diversification discountlevel is lower;During the depression although limited company diversification levelchange, diversification discount level is relatively low;During the depressionhigh-tech industry diversification discount level is lower.At the same time, themanagement cost is higher, the greater the degree of diversification discount, but thediversification discount and ownership concentration is inverse relationship.Thisshows that the internal capital market efficiency and the external capital markettransaction costs are related, is negatively related to the management the transactioncost.Finally, based on the above research results, this paper puts forwardcountermeasures and Suggestions for Chinese enterprises diversified: allocationadvantage do exist in the internal capital market, but the company diversification levelshould be controlled in a reasonable level;Corporate diversification level shouldconsider industry characteristics and the economic cycle, the environment issure;Under the condition of the external environment is relatively stable, improve thelevel of internal management, reduce the management cost and improve the corporategovernance mechanism is helpful to improve the internal capital market efficiency.