The Capital Allocation Efficiency Of The Affiliated Group Listed Companies

The efficiency of resource allocation and agency conflict are two important aspects of the research on the internal capital market of pyramid enterprise groups. Existing related research on internal capital market resources allocation emphasis on the authority of the terminal shareholder and implicitly assumes that the listed companies or lowerlevel subsidiary of pyramid chain is under the strong control and passively follow headquarters'capital allocation strategy. With the function and position in the enterprise group headquarters steering to capital operation oriented and resource strategic layout context,to enhance the efficiency of resources allocation, the headquarters is no longer suitable for strictly control lower level firms' decision-making when allocating the internal resources, this weaker interference of headquarters will strengthen the lower layer to develop their internal and external network. Recent studies began to explore the enterprise group embedded in a variety of complex networks, they found that the network relationship will influence companies' financial decision-making,which means that the network actually become an important resource allocation method. Under the above background, concerning the pyramid longitudinal holding chain characteristic and the horizontal network relationship characteristic, these dual characteristics how to change the affiliated enterprise group resource allocation decision and efficiency, and the interests of the subsidiaries whether influence parent company capital allocation decision, the above questions are important issues of the latest research in the field of corporate finance and corporate governance.The internal capital market will be divided into two levels according to the difference of control subject and functional positioning under the affiliated enterprise group pyramid holding structure, the listed companies as the interface: 1) the upper layer internal capital market formed by the terminal shareholder and the holding of listed companies. Due to the core function for overall industrial layout and resource allocation strategy, the essence of upper layer ICM capital allocation is optimizing the portfolio of listed companies; 2) the lower layer internal capital market formed by the listed companies and its subsidiaries. Listed company investment efficiency reflect the results of parent-subsidiary capital allocation activities, which include financing decision-making, equity control, business arrangements and capital configuration between different unit. With the group holding platform on the level of control of listed companies weakening, due to the presence of shareholding ties, industry cluster and related resources interaction behavior, industrial networks formed between each listed company, this network relationship is not only directly impact the upper ICM's capacity of capital allocation, but also affect the listed company itself and subsidiary investment efficiency because the effect of their own resources and external interaction ability obtain fiom the industry network.Meanwhile, the agency problems between the terminal shareholder and listed companies, the listed companies and subsidiaries, may respectively lead to distortions on capital allocation decisions in the dual layer internal capital market. On one hand, it presents as the terminal shareholders to achieve interest arrangements through the multi-level control chain, terminal shareholders make equity trading with their listed companies to implement tunneling or propping. On the other hand, it presents as the subsidiaries autonomy expansion and rent-seeking behavior, these distort the listed company business layout and capital allocation decision. Therefore, in the research framework of network organization evolution and internal capital market, the following three questions are worthy of further investigation: firstly, how the industry network formed by the affiliated listed companies affect the allocation of capital? Secondly, in the upper level of the ICM,the interests of terminal shareholder how to affect the allocation of capital in the industrial network, and the lower level of the ICM, the agency relationship between parent and subsidiary how to affect the allocation of capital in the industrial network? Thirdly, the embeddeness of director network into affiliated enterprise group whether improve the capital allocation efficiency and play a governance effect on the inefficient allocation due to the dual agency problems?Aiming at the above problems, this paper use the industrial network theory and the internal capital market theory, established a theoretical framework to analysis how the affiliated listed company's industrial network influence the capital allocation efficiency under the dual agency problems. Then this paper did the following three empirical test:firstly, in the use of social network analysis method, I established industrial network association measurement of affiliated listed company, on this basis, by examining the relationship between affiliated listed ccmpanies industrial network density, the characteristic of pyramid shareholding structure and the efficiency of upper ICM, this paper found that the industry network relationship can optimize the efficiency of capital allocation in the internal capital market, and the industry network relationship can alleviate the agency problems of terminal shareholder under the pyramid equity structure which caused a low efficiency capital allocation; Secondly, by examining the industrial network centrality of affiliated listed company, parent-subsidiary business distribution and listed company investment efficiency, this paper found that higher industrial network centrality will improve investment efficiency under the industrial network value co-creation mechanism, and the industrial network relationship also alleviate the negative impact on investment efficiency brought from the parent-subsidiary agency problem;Thirdly, by examining the director network of affiliated listed company, industrial network and the efficiency of capital allocation, this paper found that the dual embeddedness of director network and industrial network can further improve the efficiency of capital allocation both in the upper and lower layer ICM.The innovation and academic contributions of this study are mainly embodied in three aspects: Firstly, by investigating the effect of affiliated listed companies industry network density and connectedness on the upper and lower layer ICM s capital allocation efficiency, this study reveal that the intrinsic function and mechanism of how the organization network evolution influence firm internal capital allocation. Existing related research of corporate diversification are based on the characteristics of individual listed company when analyzing the internal capital market allocation efficiency, in fact,ignoring the different affiliated listed companies within the same industry, or even in different industries but have a potential association in the flow of resources within the affiliated group. This study confirm the capital allocation optimization is one of affiliated listed companies industrial network function, which on the one hand provides a new understanding on the ICM operation mechanism and capital allocation efficiency under the enterprise group is confronted with an evolution to network organization, and on the other hand expands the industrial economics theory in the study of the affecting factors on enterprise group capital allocation; Secondly, in the use of parent-subsidiary agent theory in the internal capital market, by investigating the interaction effect of subsidiary agency problem and industry network on capital allocation, this study reveals the inner mechanism of the capital configuration through industry network when facing the subsidiary agency problem. Further, this study expands the research of the affecting factors on ICM, which form single effect of the upper layer ICM agency problem to double effect of the upper and lower layer ICM agency problem; Thirdly, this study embeds affiliated listed companies directors into a network, by investigating the impact on capital allocation efficiency when embedding industrial network and directors network spontaneously, this study reveals the mechanism and effect of above dual embedding to improve the efficiency of capital allocation, and explores a new governance model for the reform to industrial network organization, giving the enlightenment of governance structure and mechanism design in the network organization.