The Study On Internal Capital Allocation Based On The Strategic Deviance

Capital allocation is an important issue of company finance theory study.A complete capital allocation process can be divided into external capital allocation and internal capital allocation.External capital market plays a key role for external capital allocation,while internal capital allocation usually depends on internal capital market.As an emerging market economy,China has an under-developed and low efficient external capital market,which increases the external trading cost of companies,and holds back financing and investment activities.As a result.it impedes value creation of companies and economic development of whole society.For above reasons,it becomes significant to supplement external capital market with internal capital allocation through internal market.In our country,the appearance and development of company internal capital market is closely linked with the appearance and development of enterprise groups.Recent years with the developing of enterprise groups,internal capital market exists popularly within listed companies.The managing process of enterprise group contains lots of internal capital activities.The patterns of internal capital allocation display different types.However,theory resear-ch of internal capital allocation lags behind practice obviously.This paper selects internal capital allocation subject to study,from the angle of strategic variety,expands internal capital allocation study,which helps explore the whole process of internal capital allocation in our country.It provides some supplementary proofs for relative research to understand internal capital market function status more completely.On the basis of above study,it has some theoretical and practical significance to promote the wholesome development of internal capital market of our country and improve the efficiency of internal capital allocation.This study is based on the transaction cost theory,principal-agent theory and information asymmetry theory.Beginning from institution background of our country,with the angle of strategic deviance,the paper discusses the question of internal capital allocation in listed companies,and focuses on its operational state and function status.The paper assumes methods of normative study and empirical study.At first,the study combines document literature and theoretic analysis,analyzes issues of internal capital allocation,such as operating mechanism,vitality,relieving financing constraints and improving investment efficiency,under the institutional background analysis.Next,the paper uses samples of 2008-2014 listed companies of Chinese A-stock market to make empirical study of internal market vitality,relieving financing constraints and improving investment efficiency.Firstly,it tests the impact of strategic deviance to internal capital market vitality,and the difference of their relationship in companies with different property rights.Secondly,it examines whether internal capital market of listed companies relieves the financing constraints,and whether its function differs with different strategic deviance.It also examines the impact to its function with property right and regional financial environment.Thirdly,it examines whether internal capital market of listed companies promotes investment efficiency,and whether strategic deviance influences this function.It also tests the impact of property right and balance mechanism of shareholders to the relationship between strategic deviance and internal market promoting investment efficiency.The paper comes to following conclusions:(1)Although Chinese listed companies commonly carry out internal capital allocation through internal capital market,internal capital allocation varies on vitality.Strategic deviance influences internal capital market vitality.The greater is the strategic deviance,the greater is the vitality.On the contrary,the lesser is strategic deviance,the lesser is the vitality.However,the positive relationship of strategic and internal capital market differs with different property rights.Compared with state-owned listed companies,non-state-owned listed companies show stronger positive relationship of strategic deviance with vitality of internal capital markets.(2)Internal capital allocation can relieve financing constraints of Chinese listed companies in some sense.But this function may be different with different strategic deviance of companies.Firstly,for companies with great strategic deviance,internal capital market can relieve financing constraints,while for companies with little strategic variety,the function of relieving financing constraints is not obvious.Secondly,even for companies with great strategic deviance,property right can affect the function of internal capital market to relieve financing constraints.Non-state-owned companies show a significant result while state-owned companies obtain an obscure result.Thirdly,regional financial environment can affect the above mentioned relieving function for companies with great strategic deviance.The worse is the regional financial environment,the better is relieving function.It shows internal capital market can substitute external capital market in some sense.(3)Internal capital allocation of listed companies can promote investment efficiency.But the promotion is also affected by strategic deviance.Firstly,with the strategic deviance becoming greater,the investment promotion function decreases.Namely,for companies with lesser strategic deviance,internal capital market has a better performance on promoting investment efficiency than companies with greater strategic deviance.Secondly,the negative relationship between strategic deviance and investment efficiency promoting function of internal capital market differs with different property rights.Compared with non-state-owned listed companies,state-owned listed companies decrease more on investment efficiency promoting with increasing of strategic variety.Thirdly,balance mechanism of shareholder can affect the relationship of strategic variety and the function of internal capital market to promote investment efficiency.With the increasing of degree of balance of shareholder,the decreasing of investment efficiency promotion function can relieve with increasing of strategic deviance.Namely,the balance of shareholder has positive influence on promotion function of internal capital market.Based on the theoretic analysis and empirical examination,the conclusion of paper can provide some reference and enlightenment for development of Chinese internal capital market,as well as the improvement of internal capital allocation efficiency.This can be summarized as follows.Firstly,for companies with great strategic deviance,on the one hand,they should strengthen risk control and disclose more information of strategy.On the other hand,they should constantly improve company governance in order to fully utilize the function of relieving financing constraints and investment efficiency promotion with internal capital market,which services the value creation for companies.Secondly,for non-state-owned companies with great strategic deviance,on the one hand,they should finance and allocate capital through internal capital market.On the other hand,they should pay attention to improve the function of non-efficient investment promotion.Thirdly,for state-owned companies with great strategic deviance,they may improperly allocate and waste capital because of agent problem and government intervention,which impact positive function of internal capital market,and increase the risks of strategic deviance.So,they should constantly improve company governance,minimize agent costs to reduce adverse effects of agent problems to investment decision,which can bring better economic results from internal capital allocation.Fourthly,the effects of large shareholder control on the allocation efficiency of internal capital should be paid more attention.For Chinese listed companies,on the one hand,they should improve shareholder structure to form favorable balance mechanism of shareholders,which can refrain the opportunism behavior of majority shareholders.On the other hand,supervision and incentive mechanism should be improved.Company information disclosure should be strengthened.This could minimize the probability of unreasonable capital allocation,and increase efficiency of internal capital allocation.Fifthly,China should improve external financial environment,promote regional financial development,provide a good platform and mechanism of financing and investment for listed companies,which can promote sound development and value creation of listed companies.Further study will focus on the impacts on internal capital market when companies assume different strategies,and reasons of difference of strategic deviance and internal capital market function with companies of different property rights,as well as economic results of efficient internal capital allocation and etc.