| Many Chinese enterprises preferred financing through the construction of internal capital market.Previous literature suggests that the internal capital market of diversified enterprises can effectively alleviate financing constraints of enterprises,however raise the double-agency problem and cross-subsidy considered as inefficiency which served as predatory tool for big shareholders enterprises with corporate innovation decreases.Chinese Property Right Law not only authorized materials,semi-finished goods and products into the scope of mortgage assets,but also clarified that the rights of assets such as accounts receivable and fund shares could be legally pledged,thus prompting commercial banks and other financial institutions to increase the current assets mortgage loan.In addition,Property Right Law clarified that accounts receivable can be pledged for debt financing,which increases the flexibility on accounts receiable after the event,and promotes the rapid growth of commercial credit in the form of payable accounts(Qian and Fang,2017).Before the publish of the Property Right Law,due to the lack of fundamental rules and frameworks of the Property Right Law,laws such as the Bankruptcy Law were difficult to function properly.Therefore the Property Right Law is milestone for the accomplishment of Chineses legal system.We employed the Property Right Law as natural experiment to analyze the impact of the Property Right Law on the efficiency of the internal capital market.Moreover we examined the influence of Property Right Law on the tunneling of shareholders,financial constraints as well as corporate innovation under differential regional law enforcement,corporate governance and information asymmetry level.Based on the above analysis,we studied the internal capital market under three types of consequences:(1)The impact of internal capital market active level on anti-tunneling effect,financial constraints and corporate innovation.(2)The impact of Property Right Law on anti-tunneling effect,financial constraints and corporate innovation.(3)The impact of Property Right Law on the relationship between internal capital markets and the tunneling of shareholders,internal capital markets and financing constraints,as well as internal capital markets and corporate innovation.The research framework of this paper is as follows: Firstly,we illustrated the research background and methodology as well as main findings,which lead to the literature review and summary on internal capital market and Property Right Law.Then we deeply analyzed the differences between Chinese and German Property Right Law for the empirical studies through the introduction of theoretical foundation and background introduction.We applied the data of Chinese A-share listed companies from 2001 to 2016 and implemented the empirical research by Difference-in-Differences model.In this way we have supported the views of La Porta et al.(2009)that proper laws can inhibit the tunneling of shareholders,promote corporate financing as well as innovation.The empirical research included tunneling effect of shareholders,financial constraints and corporate innovation.Firstly,we analyzed the impact of internal capital market on the tunneling effect of shareholders,financial constraint and corporate innovation respectively.Then we studied the effects of Property Right Law on the tunneling effect of shareholders,financing constraint and corporate innovation respectively.After that,we explored the effect of Property Right Law on the relationship between internal capital market and the tunneling effect of shareholders,internal capital market and financial constraints,internal capital markets and corporate innovation.Based on the above analysis,we verified the influential routine of the internal capital market on the tunneling effect of shareholders,financial constraints,and corporate innovation.Finally we summarized and analyzed the empirical results and theoretical framework.Based on the data of China's A-share listed companies during 2001 to 2016,we found that: First,there is a positive relation between the active level of internal capital market and the tunneling effect of shareholders: compared to the moderate active sample of internal capital market,the influence of internal capital market has greater impact on the tunneling of shareholders in low active internal capital market sample.Compared to the low and medium active internal capital market sample,the influence of internal capital market has greater impact on the tunneling of shareholders.Furthermore,we found interval effect on the impact of the internal capital market active level on the tunneling of shareholders.Then,we employed the Difference-in-Differences model to study the impact of Property Right Law on the tunneling of shareholders.We found that the tunneling behavior of shareholders has been significantly inhibited after the Property Right Law.Meanwhile we studied the relationship between the active level of internal capital market and the tunneling behavior of shareholders under Property Right Law,and we found that the Property Right Law could restrain the tunneling effect of shareholders.Similar to the above analysis,we found that the Property Right Law has more significant impact on firms with weaker regional law enforcement,higher information asymmetry.These results showed that Property Right Law has anti-tunneling effect,which provided theoretical reference for the development of legal system and the supervision of security market.Second,in the low-active internal capital market sample,we found negative relation between the active level of internal capital market and corporate financial constraints.In the high-active internal capital market,there is positive relation between the active level of internal capital market and the financial constraints.By further analysis,we found interval effect of internal capital market active level on corporate financial constraints,which is U-shape.Then we used difference-indifferences model to study the impact of Chinese Property Right Law on the corporate financial constraints.We found the cash flow sensitivity of firm decreases after the implementation of the Property Right Law,the reliance on the internal cash flow for financing is weakened.At the same time,we studied the relationship between the active level of internal capital market and corporate financial constraints under Property Right Law,and we found that the correlation between internal capital market active level and corporate financial constraints is no longer significant.In addition,the Property Right Law has also released the finance constraints of firms with stronger regional law enforcement and internal governance.These results showed that after the implement of Property Right Law,external finance has replaced internal capital market as more efficient capital allocation mechanism.All of these contributed to the accomplishment of Property Right Law and the optimization of legal system.Third,in the low and moderate active level sample of internal capital markets,we found negative relation between the active level of internal capital market and corporate innovation.Compared with moderate active samples,the internal capital market in the low activate sample has more significant influence on corporate innovation.In high active internal capital market sample,there is a positive relation between the internal capital market active level and corporate innovation.Moreover we found interval effect which is U-shape between the active level of internal capital market and corporate innovation.Then we used subgroup regression to study the impact of Chinese Property Right Law in 2007 on corporate innovation,we found that the implementation of Property Right Law promoted corporate innovation.At the same time,we analyzed the relationship between the active level of internal capital market and corporate innovation under the background of Property Right Law.We found that in low active internal capital market,the impact of Property Right Law is not significant on the relationship between internal capital market and corporate innovation;in the moderate active sample of internal capital market,the Property Right Law aggravated the negative relation between internal capital market and corporate innovation.For high active internal capital market sample,the Property Right Law mitigated the negative correlation between internal capital market and corporate innovation.In general,the Property Right Law promoted corporate innovation and at the same time aggravated the negative relation between internal capital market active level and corporate innovation.The above studies showed that the impact of the Property Right Law on corporate innovation is significantly different under different active level of internal capital market.These results provided theoretical references for China to further optimize the construction of the legal system,the supervision of securities market and the application of innovation-driven development strategy.The possible innovations are as follows: First,we studied the impact of internal capital market on tunneling effect of shareholders,financing constraints and corporate innovation from the perspective of continuous variables.Based on the nuclear density function of the internal capital market active level,we divided the sample into three sub-samples which are low active,moderate active and high active level of internal capital market.In that way,we analyze the effect of internal capital markets to reflect the differential effects of active level in the internal capital market on the tunneling effects of shareholders,financial constraints and corporate innovation.Second,due to the scarcity of natural experiments in the reform of legal system,most of the existing literature applied regional data such as transnational or inter-provincial data to examine the relationship between legal systems and financial development.Only a few studies focus on the empirical evidence on exogenous legal reforms.We found that the Property Right Law has inhibited the tunneling behavior of shareholders,improved the financing constraints,and further promoted the corporate innovation.At the same time,we examined the relationship between the active level of internal capital market and tunneling effect of shareholders,the active level of internal capital market and the corporate financing constraints,as well as the active level of internal capital market and corporate innovation under the background of Property Right Law.We found that the Property Right Law could produce synergy effect with internal capital market to inhibit the tunneling effect of shareholders,and weaken the negative relationship between the internal capital market and corporate financing constraints as well as aggravate the negative relationship between the internal capital market and corporate innovation.Third,we attempted to further clarify the mechanism between internal capital market and corporate innovation through the perspective of financing constraints and tunneling of shareholders,that is,to uncover the ?black box? of corporate innovation and internal capital markets.In addition,we found that the Property Rights Law has differential effects on the tunneling of shareholders,the financial constraints and the corporate innovation under different degrees of information asymmetry,internal governance level,and regional law enforcement.First of all,we suggested that listed companies should establish control shareholder monitoring system while enhancing the information disclosure.Second,as the interval effect of active level of internal capital market existed,and the creditors may pay close attention on the related transaction behaviors,firms should strengthen the supervision of internal capital market control system to avoid related transactions and over-investment.Third,based on the effect of Property Rights Law on the tunneling effect of shareholders,financial constraints and corporate innovation,the relevant departments should promote the multi-level capital market construction,optimize the financial resources and service structure,strengthen the financial structure of new economy especially for the small and medium-sized enterprises,in order to break the monopoly of bank credit financing and government financing.These suggestions not only contributed to solve the financial distress of Chinese firms,but also fundamentally refine the R&D environment of firms.All of above provided theoretical references on the legal system construction,the supervision of securities market and the innovation-driven development strategy. |
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