The Research Of Financial Management And Control Between Parent And Subsidiary Company In Enterprise Group

In the development of enterprise groups in China, because of its rapidlyexpanding scale, complicated organization structure, parent company generally losescontrol to subsidiary in enterprise group. As the core means of enterprise groupsmanagement, financial management and control maximize the overall financial valueof the enterprise group as the ultimate goal, and guard against the finance risk ofsubsidiary. It has an important role to solve the problem above of enterprise groups inChina.Strengthening financial management and control of the parent-subsidiary ofenterprise group, i.e., to prevent the financial risk of the enterprise group financialmanagement activities may be produced. The financial risk is different with a singleenterprise, it not only includes the risks arising from inside or outside uncertainties ofthe enterprise financial management activities, but also includes the risk due to anenterprise group multiple agency relationship led to the subsidiaries’ managementactivities deviate from the expected results of the parent company. The last risk is amajor risk faced by the enterprise group financial management and control.In theory, because of multi-layer principal-agent relationships betweenparent-subsidiary of enterprise group, subsidiary managers as agents are easy tobetray the principal, the betrayal of main performance unit in violation of the parentcompany operating and financial policies, in order to personal interests andnon-enterprise benefit maximization as the goal for the operation and managementactivities. In addition, according to our country enterprise group (mainly state-ownedconglomerate) subsidiary of property right structure, and its majority owned by thestate, but controlled by the parent company. Therefore, the right of surplus control ofsubsidiary belong to the parent company in theory. But as subsidiary state-ownedshares delegate is unclear, rights and obligations is unequal. The function of the board of directors of subsidiary, especially its supervision function is not sound. Therefore,the right of residual control of subsidiary is actual not in the hands of the parentcompany, but in the hands of subsidiary. So we can see that on the one hand theoperator of the subsidiary has the right of residual control, on the other hand theoperator of the subsidiary has the problem of adverse selection and back problems. Inorder to ensure the enterprise value maximization, the parent company must manageand control subsidiary, and this control is mainly reflected in the configuration offinancial right and supervision of daily operation and management activities ofsubsidiary.So, the financial management and control between parent-subsidiary company inenterprise group mainly includes two aspects. First, according to the enterpriseinternal and external environment, enterprise group should reasonably choose themode of financial control. Second, according to financial right distribution betweenparent and subsidiary company, enterprise group should choose reasonable way tocontrol subsidiary company.Enterprise group financial control pattern basically can be divided into threetypes. They are bureaucratic control, market control and clan control. They are ageneralization and abstraction of the distribution of power between parent andsubsidiary company. The selecting of the types should be considered the influencefactors from enterprise external environment, the parent and subsidiary company.Due to the different financial control mode, the property rights allocation isdifferent between the parent and subsidiary company, financial control methods usedby the parent financial controlling subsidiary company will also be different. Thispaper established a financial control framework under the pattern of clan control. Inthis framework, this paper analyses the risks of the subsidiary financial activities, andas the guidance, proposes the financial control methods-process control of financialactivity and assigned personnel supervision. This paper takes an example of the parentcompany controlling the project investment of subsidiary in A enterprise group, studies the financial control methods. On the one hand, it can make clear about theparent company how to control the construction project investment of subsidiary, onthe other hand, it can provide guidance for the parent company how to control theother financial activities of subsidiary.