The Study On Corporate Capital Allocation Decision And Efficiency Embedded In Internal Capital Markets In Groups

Facing the imperfect external capital markets with frictions, introducing information economics, principal-agent theory and behavior finance as analysis tools,corporate finance has bred abundant outcomes. Based on market-firm dichotomy,these studies probed into the efficiency of capital allocation across different firms from economic angle. With the constant developments of middle organizations such as business group, organizations economic is springing up, giving a different analytical interpretation for organizations behavior in corporate finance. The new research paradigm studies inter-organizations how to make capital allocation decisions, taking information and transaction as the key concepts, which not only remodels the theory hypothesis, but also expands the research in the field of corporate finance.Internal capital market is one of the main features of business group. Through internal capital markets, funds is allocated to group-affiliated firms leading by the group headquarters, then group-affiliated firms invests efficiently to create value. The capital allocation decisions of group headquarters determine the efficiency of internal funds allocation in the group,and also influence the capital investment decisions making by group-affiliated firms. Therefore, under differential social economic background during transition period, combining theoretical knowledge of inter-organizations economics and corporate governance theory, the paper theoretical explains the evolution ways and operation mechanisms of internal capital markets. Then according to the linkage between financing and investment , this project probes the investment behavior and its efficiency of listed companies with the influence of internal capital markets and demonstrates some empirical proof, which are much more systemic and more close to the corporate character. The paper contains seven chapters, the primary content is as follows:Firstly, attempting to provide an integrated framework to introduce and compare these different empirical research, in the hope of helping enhance acdemics understanding of this field, the paper uses several methods of inter-organizations economics,corporate financing theory and corporate governance theory, and then put forward the opinion that efficiency,common insurance,tunneling and propping are three functions of internal capital markets in business group. In addition, it shows the three fucntions of different concentration, according to the differences existed between the patterns of business groups growth.Secondly, considering chinese listed companys'situation, the paper uses ordered logisitic method to estimate the financial constraint. Based on panel data, it tests the substitute relation of internal capital market in business group and financial constraint. Thus it differentiates the degree of financial constraint, and theoretical analyzes the mechanism of group-affiliated firms'investment behavior under capital allocation in business group. Using the ridge regression to control the effect of multiple colinearity, empirical evidences shows that internal capital markets in group are a efficiency factor in allocating resources, accounting for the institutional voids that in turn lead to market imperfections and transfer costs. At the same time, it has identified several mechanisms by which the allocation of investment funds in an internal capital market can alleviate the financial constraints when group-affiliated firms less financially constrained or strengthens over-investment when group-affiliated firms more financially constrained, as compared to an external-capital-markets benchmark.Lastly, to explore the different economic consequences under different functions of group's internal capital market, caused by different financing and investment mechanisms, the paper discusses the value of group-affiliated firms baesd on integration of static and dynamic characterizations. After analyzing the efficiency and safety of internal capital markets, it empirically studies the impacts of internal funds allocation on group-affiliated firms'performance growth and stability using panel data. Moreover, the paper selects listed company which fall into financial distress as research object, and empirically explores factors affecting the probability of bankruptcy of business group using binary logistic method and bankrupt spillover costs, based on investigating the causes and conductive effects of the financial risk in business group.The results indicate that in one hand group affiliation has a positive and significant impact on listed companies'performance growth and earnings stability, on the other hand, internal capital allocation has affected the performance growth of group-affiliated firms. The paper also shows evidences that an affiliated firm becomes bankrupt actually results in large negative spillovers to member firms in the group. While large shareholder supports affiliated firms, which reduces overspread of financial risk and allows affiliated firms to commit to a lower likelihood of bankruptcy.