Internal Capital Market, Financing Constraints Relax And State Business Groups Investment

In recent years, the number of enterprise groups in China has increased year by year, expanded production scale and economic benefits has improved significantly. The state enterprise groups is an important force in promoting China’s economic development, analyze on state enterprise groups is crucial. The Enterprise Group is a highly developed on the basis of the modern enterprise, property rights as a link, combined with the agreement between the enterprises jointly organized by corporate enterprises supplementary ties, is the product of the modern enterprise system innovation.The ability to create internal capital market is a very significant characteristic of the enterprise groups. The internal capital market provide a convenient on the allocation of funds to the most effective place, helps to overcome the transaction between the main difficulties in the protection of property rights and contract enforcement process, reduces transaction costs.State enterprise groups is a registered parent company of state enterprises or state companies of enterprise groups, as the Commonwealth with characteristics of large, giant, multi-corporate structure, diversification, multi-way linking. The state enterprise groups as a kind of enterprise groups will be the formation of internal capital markets, state-owned conglomerate internal capital market exists in the enterprise group within the funding mechanisms and funding allocation mechanism. Since Williamson proposed the concept of "internal capital market, the internal capital market theory has been used as a cutting-edge issues of economics research.The existing value of the assets of the relevant companies and investment projects expected benefits of information asymmetry between external investors and company management, high-quality companies for the implementation of financing securities issued by investment projects may be underestimated. Corporate can not be in accordance with the reasonable cost of financing sufficient funds, then they had to give up some investment projects with positive net present value. Internal capital market will effectively solve the problem of the above lack of business investment.State-owned enterprise group involving a number of areas, there exists the principal agent relationship between the managers of the Group and subsidiary managers in different areas. Subsidiary managers consider personal interests in the business process, more impulse performance (most of the state enterprise managers are government officials), and how to make the effect to the performance of the self-interest of the importance of business enterprises, to promote operators dare to take higher investment risks to start new projects, dared to raise excess funds to diversify investments. Internal capital markets in the state enterprise groups have relaxed the case of the member firms financing constraints, but there may be blind lending, excessive investment in the phenomenon of the member companies of the investment-cash flow sensitivity is still high, increasing the member companies and the financial risk of the enterprise group, which distorts the internal capital market capital supply and demand ratio.In this paper, we focus on the factors of the internal capital market system of state enterprise groups to relax financing constraints function, such as members of the company’s governance, the group nature of the group’s control structures, whether listed as a whole. The combinations of theoretical and empirical research are two ways to study. On the basis of access to state enterprise groups internal capital markets literature, drawing on the results of their research, to compensate for the inadequacies of their research, realistic assumptions, and to collect the sample data, an empirical analysis using statistical software, in order to prove that assumption right or not. Finally concluded with the conditions of enterprise groups can really make use of the Enterprise Group’s internal capital markets relax the financing constraint functions to achieve a reasonable normal financing, while not causing excessive investment and the negative impact.Empirical analysis concluded that:the financing constraints faced by the state controlled by the Group companies is less than financing constraints of state non-Group company, the internal capital markets in the state business groups can relax the financing constraint. Good governance in member companies, enterprise group listed as a whole can make state enterprise groups internal capital markets function to get a good play to relax financing constraints; on the contrary, the chain is too long to control the number of companies, too much of the pyramid holding structure of state-owned enterprise groups will be alienation the function of the internal capital market.