The Research For The Efficiency Of Internal Capital Market In Enterprises Group

Capital allocation is the core of the allocation of resources. As regard to the allocation of capital, people generally think of the stock, the bond or the bank credit market and other external capital markets at first, but ignore the existence of another market-the internal capital market. In recent years, with a large number of Mergers&Acquisitions occuring and the wave of emergence for enterprise groups and the diversity, the research on Internal Capital Market is also increasing.The research for Internal Capital Market started relatively late in China.From the mid of1980’s, China promoted to the formation of the Groups,and a large number of enterprise groups emergenced between listed companies.Meanwhile,at the early construction of China’s securities market, listed companies and more to split the form into the capital markets, the formation of a large number of parent-subsidiary structure.There were a large number of related transactions between subsidiaries and parent company,which formed the related internal capital market.Otherwise, in the last ten years, a large number of departments of family businesses appeared in China, making the operation of the internal capital market more generally.The research findings of internal capital market in China is inconsistent.In theory, the struggle of "effective" and "void" exists.While,while in practice there is still in exploration and confirmation. So, whether the Internal Capital Market is efficient or not? The Internal Capital Market is effective under what circumstances, and what circumstances is invalid? If the Internal Capital Market were inefficient, what measures should we take for its improvement? These problems should be solved, which is the starting point of this paper.This paper provides further systematic research on Internal Capital Market issues, with theoretical analysis, logical reasoning, empirical research and case study method. Based on the disscussion of the basic theory on the concept, features, functions of Internal Capital Markets and mechanisms,the paper analysis the condition, history and present situation of the Internal Capital Market in China,with the background of China’s special system.Chapter I, 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 Ⅱ, the basic theory and the mechanism of internal capital markets.Mainly analyze the concepts,characteristics,theoretical basis and functions of internal capital market.Then idendifine the relationship and the difference between Internal Capital Market and Exernal Capital Market,in order to systemically study the basic theory of internal capital markets. Then, make clear what are the elements and vectors of the Internal Capital Market System and analyze the the process and the way in which Internal Capital Market operates.Chapter III, the development process and the current situation of the internal capital market in China. Analyze the special systematical background in which the internal capital market emerged and develops, combing with the actual situation in China.Meanwhile, further describe the current situation of the internal capital market in China,such as Groups, changes in the number of financial companies, the universality of related party transactions.Chapter IV, the empirical research on Internal Capital Marke efficiency-based on Listed Private Companies in China.explain the reason for the sample choosen, discribe the data sources and processing. Then, empirically research on the ICM efficiency of the private companies with J-W method, Q sensitivity analytical method and cash flow sensitivity analytical method respectively.Chapter V,the analysis on factors affecting China’s internal capital market efficiency. Make comprehensive analysis on factors related to China’s internal capital market efficiency from corporate governance, ownership structure and diversification perspectives, based on the special system background.Find out factors that affect internal capital market efficiency of private companies in china through Logistic Regression.Chapter VI, case studies-based on the Wang Xiang System.The case of "Wang Xiang system" will be selected to test empirical results in this part. First,give the reason why Wang Xiang System is chose and introduce it briefly. Second, analyze the operation mode of the internal capital market in the system. Finally,analyze the effectiveness of internal capital market and influencing factors. Chapter VIII, the conclusions and recommendations. First, summarize the research findings based on the full text studies,.Then, Analyze the constraints of the internal capital market in China.Finally, raise several suggestions according to the problems and the actual situation of China’s internal capital market development.The paper comes to the conclusion as following:First, the existence and development of the Internal Capital Market in China had its special background. Huge financing needs and the existence of bank credit allocation and credit discrimination, with the imperfect of the stock market,made the internal capital market a comparative good choice. Internal Capital Market has developed rapidly in recent years in China, mainly showed by the emergency of large number of Groups and finance companies, the appearance of family business which are developping rapidly,and the frequency of the related party transactions.Second, the Internal Capital Market of family enterprises in China was inefficient overall. With J-W method, Q sensitivity analytical method and cash flow sensitivity analytical method,the results show that the efficiency of Internal Capital Market of China’s family enterprises in generally low.Third, the Internal Capital Marke in private listed companies is partly efficient.From Q and cash flow sensitivity analysis of single company, some of their Internal Capital Markets is efficient.These companies could effectively make use of internal capital market to alleviate the financial pressure and optimize resource allocation.Fourth, the internal capital market efficiency is affected by many factors.The efficiency of the internal capital market was significantly positively correlated with the extent of foreign investment, ownership of board and senior executives stake, while negatively correlated with the number of board meetings during the year, the proportion of independent directors, whether diversified and the separation degree of the control rights and cash flow separation.