An Empirical Study On The Efficiency Of Internal Capital Market

The main function of Internal Capital Market is to allocate financial resources insidethe company in a more efficient way. To some extent, Internal Capital Market is theextension and substitution of External Capital Market. It's well-known in westernacademe that the influence of Internal Capital Market is more evident while ExternalCapital Market is less developed. The thesis verifies the forenamed theory using theevidence from High-tech Industries in China. Comparing with the usual researchmethod adopted by foreign scholars, the thesis makes use of a different model to dothe empirical analysis considering special conditions of Chinese stock market. Andthe result indicates that there is less exchange between External Capital Market andthe company when this company is more diversified. The study comes up with theconclusion that companies having good investment opportunity of High-techIndustries prefer to be diversified and impose Internal Capital Market to achievesuccess because External Capital Market is so poor that it couldn't exert the functionof allocating resources perfectly.