Group's Internal Capital Market Behavior Research

The United States has got into the times of M&A since 1960's in 20centuries. Our country also made a decision to put emphasize ondeveloping the large business groups in the process of enterprisereforming. Also our country has begin to set up diversified andmultidivisional conglomerates since the mid 80's in 20 centuries. Theresearch on internal capital market (ICM) has begin in the situation.The paper concentrates on the efficiency of ICM.The ICM isn't existent independently but existed in the economicsystem together with external capital market (ECM). The ICM and theexternal capital market substituted each other with the change of ICMand ICM's efficiency. So we talk about the boundary of internal capitalmarket. And we try to find out the factors affected the best boundaryof internal capital market. Then we analyze the mechanism of how thesefactors influence the best boundary of internal capital market.We mainly talk about the effect of ICM on financing and investment.On the financing aspect, business groups managing the whole funds,promote the credit level and the efficiency of using money, strengthenthe ability of controlling the subsidiary companies, and disperse therisk. On the investment aspect, the paper discusses the internal transferpricing mechanism which will benefit the establishment and improvementof ICM, enhance the relevant governance efficiency.Finally, ICM is the way of resource allocation which also has someproblems. In this sector, we mainly analyze the principal-agencyproblem.