The Alienation Of The Internal Capital Market In China Enterprise Group

With China 's entry into the WTO and the economic globalization, our country made a decision to put emphasize on developing the large business groups in the process of enterprise reforming .Also our country has begin to set up diversified and multidivisional conglomerates .In fact ,the related transactions around inside the company play very important parts .The internal capital market indeed exist in China.The earlier researches of the internal capital market have found that the big enterprises carry on financing through ICM, both can save the information search cost, and has dodge the investment risk to some extent. However , as the deep researches of the internal capital market ,lots of defects of the internal capital market caught attentions of the people.The Asia firms show a sharp divergence between cash-flow and the control rights-that is , the largest shareholder is often able to control a firms' operations with the a relatively small direct stake in its cash-flow rights. Control is often enhanced beyond ownership stakes through pyramid structure and cross-holdings among firms. As a result, the functions of the internal capital market are changed. The internal capital markets reduce the value of the firms .In this article , we make a survey on the related transactions of the firms. Then , we designs and portraits the internal capital markets 's patterns and its internal corporate governance problems. We make an experience research on the relationship between the internal capital market and the firm value. It is believe that the internal capital marketimprove the efficiency of capital allocation, but the risks of corporate governance problem may distort the function of ICM. So appropriate corporate governance is needed for the efficient of the ICM.