| Since the1920s, the wave of business merger and acquisition has spread to otherparts of the world, finally giving birth to large business consortia. With the increasingtrend of business conglomeration, internal business market was formed and rapidlydeveloped. However, due to information asymmetry and a high cost in businesstransactions between different corporations or other intrinsic disadvantages of theexternal market, more and more consortia redirect at the internal capital market formore opportunities and profits, resulting in the birth of internal capital markets withincorporation groups. The internal capital market has an edge over the external marketin information symmetry and timelessness, transaction cost and profits, resourceallocation and utilization. Meanwhile, its effectiveness in actual practice is witheredbecause of the existing conflicts between the parent company and the subsidiary, themajor shareholder of the parent company and the minor shareholders of the subsidiary,the investor and the manager as well as other complicated problems with the agents.Whether transactions within internal capital market increase or decrease thevalue of business consortia has always been the focus of theoretical debate, and yet noconclusion has been drawn so far. In the meantime, conflicts of interests haveenhanced within the consortia with their rapid growth and expansion, which preventedthe value of the whole consortium from increasing. This paper aims to investigatewhether transaction within internal capital market increases or decreases the value ofa corporation, how it imparts its influence and tries to throw light upon why the sametransaction can have different influences in the hope of coming up with solutions tosolving the insufficiency of internal capital market at home, improving the regulationof internal capital market, playing the strength of corporation internal capital marketto the fullest and enhancing the value of the whole business consortium. |
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