Operation Mechanism And Efficiency In Internal Capital Markets Of Financial Holding Companies

As the development of the global liberalization and the integration of the financial market, major countries of the world have transformed its’financial system from the Separate operation mode into the Comprehensive operation mode. Representatives as the USA and Japan chose the innovative organization mode to form the Financial Holding Companies during their process transforming into the comprehensive operation mode. Chinese domestic market also makes progress with building the FHC’s and excises the multiple operation as the background that the global financial market’s transformation and continuously investment of the foreign financial organizations. Actually there have been several FHC’s of different types in China, though there is lack of specific laws and regulations that defined the FHC’s clearly.The capital operation between the parent company and its subsidiary or just among the subsidiaries form Internal Capital Markets in the FHC’s with some differences compared with the external capital markets. Based on the background, this article will combined with the popular theory about the ICM to analysis the FHC’s, especially on the viewpoint of the mechanism and efficiency of the ICM’s operation process.For the main ideas of the research, this article will focus on two major points:the ICM’s mechanism of the FHC’s and the efficiency of the operation process. In the view of the theory of the ICM, this article firstly researches the ICM’s operation mechanism of the FHC’s from three aspects:element, characteristic and operation method especially on the last one. Second, in the considering of the difficulties in getting data from the FHC’s in mainland, this article chooses to use the figures of FHC’s in Taiwan district. By using the model structured by the Investment-Cash Flow Sensitivity method to improve the model and the index of the model combined the characteristics of the financial company, the result about how is the efficiency of the ICM in the FHC’s is illustrated by the panel data in the demonstration section. At the end of the article, the analysis is based on the result of the demonstration section. And it will offer some reference material and advices about how to operate the rising ICM of the FHC’s with high efficiency and optimize it.