Diversification, External Financing Constraint And Internal Capital Market Efficiency

External capital market and the internal capital market are two indispensable partsof capital allocation. Richardson (1960), Alchian (1969) and others say that there areobstacles or too costly to get internal information for external investors, it possible tointernal capital markets replace the external capital markets and to resolve the externalfinancing problems.The internal capital market and external capital markets is not only alternativerelationship but complementary; The alternative relationship reflected in the easeexternal financing needs, the complementary relationship reflected in the expansion ofthe scale of external financing.This paper focuses on the complementary relationship between the internal andexternal capital markets. Analyzing interaction of the internal and external capitalmarkets theoretically. Selecting2009-2011H-share listed companies of multi-segmentfor samples empirically. Determination of the efficiency of the internal capital market ofthe H-share listed companies, then empirical analysis of the amount of externalfinancing and the internal capital market efficiency. Based on Wrigley category method,comparing external financing capacity and internal capital market efficiencycoefficients on different diversified business model, finding out optimal diversifiedbusiness model under the internal and external capital market interactionsThe empirical results show that: firstly, the diversification and external financingcapacity was positive correlated significantly; Secondly, in the case of asymmetricinformation, the internal efficiency of the capital markets and the external financingcapacity rate was positive correlated significantly; Thirdly, internal capital allocationand external financing capacity are effective on related diversification business model,to achieve the best effect of internal and external resource allocation.