Research On The Internal Capital Market Mechanism Based On The Divisions' Relatedness

In the modern economy, the capital allocation is the basis of whole resource allocation, it is a core problem that how to allocate capital effectively within diversified enterprise in the field of modern finance. In diversified enterprise groups, capital allocative efficiency is realized, firstly by allocating capital between enterprises in the external capital market (ECM), then allocating capital between divisions in the internal capital market (ICM). Therefore, it is considered that improving capital allocation efficiency of the internal capital market is a key determinant step of capital allocation in groups, analyzing the influence factors of allocative mechanism, designing the appropriate internal capital allocation mechanism to improve the efficiency of ICM become hot problems.This paper demonstrates the division's relatedness is one of the important factors affect the ICM configuration mechanism. From the perspective of ICM headquarters and the divisions, in the framework of principal-agent, the division's relatedness affection on ICM configuration mechanism is discussed, and the mechanism design of division's manager compensation incentive is also discussed in order to improve the allocation efficiency. First, from the view of the existence of ICM demonstrate general relatedness between divisions; then, expanding the knowledge of division's relatedness and three types division's relatedness are studied from the points of ICM configuration mechanism and efficiency; finally, some conclusion of the above model is tested in the empirical anlysis, based on the listed companies in "Chinese enterprise groups", the empirical part analyze of affection of the division's relatedness on the investment behavior in ICM. The paper uses normative analysis, comparative analysis, empirical analysis, the combination of qualitative and quantitative analysis method. After each model deduction, the paper adopts numerical simulation or the case analysis to the theory result.This paper systematically proposes a theory that the mechanism and efficiency of ICM is affected by the division's relatedness. The innovation of this paper mainly has the following three points:(1) It summarizes the theoretical basis of the division's relatedness. This paper attempts to depart from the resource-based view. Based on resource redistribution and "synergy" construct the inherent logic of the division's relatedness in a diversified enterprise. Similar, contact and convergence in resource between segments is an inevitable phenomenon in diversified businesses, regardless related diversification or non-related diversification. The relevance of these resources affect their redistribution among segments, also affect the allocation of funds of ICM inevitably. The division's relatedness is a key factor which determine the efficient or inefficient ICM. (2) The paper establishs three models on how the division's relatedness affects ICM mechanism. According the ICM perspective, This paper puts forward three types of division's relatedness in variety of resources:information transitivity between divisions, the assets conversion between divisions and the resource synergy between divisions. The results shows that three types of relatedness produce different effects on ICM mechanism:information transitivity between divisions to "winner picking", the assets conversion between divisions to compensation of divisions' managers and the resource synergy between divisions to "socialism". (3) The paper expanding the testing method and content in ICM empirical analysis. From the perspective of ICM existing, we point out that the division's financial decision relatedness is common phenomenon in ICM. It also involve the finance companies of enterprise group, which is China's unique phenomenon.The result shows that group finance companies have strengthened the relatedness (making ICM more active).On the base of mearsuring of division's relatedness by SIC method, This final part mainly tested the division's relatedness influence on ICM mechanism, mainly ICM "socialism" and "smart money". The result shows that the division's relatedness has a significant impact on short-term and long-term ICM funding.