Department Of Family Group Governance And Internal Capital Market Allocation Efficiency

Over the past ten years, with the continuous development of China’s economy, theprocess of enterprise reform, mergers and reorganizations, and corporationdiversification is also in its full swing. A large number of enterprises or groups cameinto the control of several listed companies through mergers and acquisitions or byself-listing, and then became a large "factional group". The emergence of the "factionalgroup" is accompanied by the internalization of the capital market. The ultimatecontroller of the factional group is in control of the group’s listed resources throughlayer upon layer share-holding, and they can transfer or allocate the internal capitaldepending on their "headquarter" position. At the same time, the listed companiescontrolled by the same ultimate controller are linked by some special relationship andare in netted in various transactions. In these ways, the internal capital markets aredeveloped. However, whether the internal capital markets in the Chinese factionalgroups are in good role of allocating the internal fund, and what kind of factor could andhow to affect it is still in question. And that is just the original intention of the paper.After reviewing of the related literature at home and abroad, this paper’s researchideas and contents are organized as follows. First we analyze of the connotations andthe characteristics of the “factional groups” and the “internal capital market”respectively. Then we further review the methods of measuring the efficiency of internalcapital market and give some appropriate improvements. After that, the paper goesdown to analyzing the affecting mechanism of the factional group’s governancecharacteristics on the allocating efficiency of the internal capital market on condition ofour contry. Then based on these analyzes, the factional listed companies on theShenzhen and Shanghai capital market from2009-2011are selected and grouped as theempirical sample, and be used in measuring the allocating efficiency of the factionalgroup by means of the improved cash-flow sensitivity model. By then come theempirical tests and analysis on the factors affecting the allocating efficiency throughthree aspects including shareholding structure, board governance and assets’ structurefeature of the groups. In the last part of the paper are some pertinent policy suggestionsaccording to the results and conclusions.