On The Economic Consequence Of The Related Party Transactions Intra-business Group

As the most typical intermediate organizations in market economy, business groups have a dual nature and a firm-market hybrid nature, which makes related party transactions intra-business group special and complex. It is an indisputable fact that business groups are craving for opportunities to rip benefits through related party transactions intra-business group. In China, the listed companies and their related parties are common inextricably linked, and those frequent internal transactions not only make the listed companes in deep trouble, lossing competitiveness, but also adverse to build a market environment of fair competition and bring heavy losses to national economy. This provokes questions that how to regulate the business group’s internal transactions and how to construct a more effective supervision system. The study of the theory and policy design about the related party transactions intra-business groups have become the hotspot and difficult questions in the academic circle.Considering the related party transactions intra-business groups and its system background, the paper initially puts forward the concept of "economic consequences of internal transactions", a standard of regulating related party transactions intra-business groups, to confirm the emphasis of supervision. The paper defines the concept of "economic consequences of internal transactions" by relevant theories in industrial economics and accounting, and focuses on the consequences and evaluation criterion from the perspective of allocative efficiency of resources. As to the research method, the combination of normative analysis and empirical study is used. Before an emprical research, descriptive statistical analysis is needed to determine the major related party transactions. To find out which kind(s) of related party transactions is(are) more likely to lead to negative economic consequences(reduce resource allocation efficiency), shed some light on the key points in the regulatory process and provide theory basis for designing a better classified regulation framework concerning related party transactions intra-business group as well as analysis thought from the perspective of medium and micro, the paper selects the2007-2011all share A listed company as samples for empirical research from the perspective of macro (capital market). The study’s content and conclusion have important reference value for government to make supervision policy about related party transactions intra-business group.This paper is divided into five sections. Chapter I is the foreword, which introduces the background and research value of the present research. While reviewing the research by scholars both home and aboard, describing the blueprint for the ensuing section. Chapter II is the related theories about related party transactions intra-business group, which interprets the rationality of the existence of business group. To define the the concept of " economic consequences of internal transactions" deeply, the paper introduces the theory of industrial economics as the theoretical basis for empirical test. Chapter III is empirical study design, which is the most important part of this study. First to this chapter is descriptive statistics between2003and2011to make sure the major related party transactions. As for emprical research, the samples is all share A listed company between2007and2011. The regression model is based on the resource allocation efficiency model came from Jeffrey Wurgler, which is joined the control variables and cross-product term. Chapter IV is the empirical results and analyses, which confirms the related party transactions reduced resource allocation efficiency. Chapter Ⅴ is the summary above four parts, which also explains the future study trends.This paper finds that related-party guarantee and related-party fund are more likely to lead to negative economic consequences. On the contrary, related assets transactions are good for resource allocation efficiency. Thus, we need to establish stricter regulation policies for related-party guarantee and fund, in order to perfect the government management reform.