Research On The Internal Capital Market Operation And Its Efficiency In Business Group

After the reform and opening up, China’s market has been developing rapidly, but still in the stage of emerging markets. Under the guidance of the government, state-owned enterprises have been implementing a large number of mergers, acquisition and reorganizations, as well as the private enterprises, until now, the enterprise group has become a prevalent form of organization in Chinese market. Merger, acquisition and reorganization could bring about financial synergistic effect which would lead to the construction of internal capital markets (ICM) Previous studies show that to both the state-owned enterprises and private enterprises, internal capital markets could promote the group’s internal capital allocation more streamlined on one hand, could play the role of easing financing constraints on other hand to help enterprises reducing the external financial intermediaries trade friction and transaction costs. This article exactly begins with the case of enterprise group in our country, and then builds the relevant theoretical basis, using the normative research technique to summarize the existing research results at home and abroad. This article mainly studies on construction of ICM and effects based on the case of COFCO Corporation, which is the leader in China agri-food industry. In the end, this article not only properly draws conclusions including the operation of ICM and its efficiency but also puts forward some useful suggestions.This paper includes five chapters:The first chapter is a brief introduction of the background, significance, research methods, research ideas and the frame work. It illustrates the main contribution and deficiencies of this article.The second chapter is the literature review. This part summarizes the content as follow:how the concept of ICM was put forward and why ICM was formed. What is the efficient and how does ICM operate. How to measure and calculate the efficient of ICM and what the efficiency and influence factors of the efficiency of ICM are.The third chapter is theoretical analysis. This chapter mainly introduces the theoretical basis of the studies of internal capital market, including transaction costs theory, information asymmetry theory, principal-agent theory, the management synergy theory and specialization strategy theory, which provide a basis for the whole study of this paper.The fourth chapter is the study on the basis of COFCO case. This chapter is the core of this article, which is divided into six sections. This chapter respectively introduces the basic situation of COFCO, how its group strategy to influence its internal capital market, what is the COFCO’s internal capital market building process, how it operation and what is its efficiency. Finally the study of COFCO shows that under the guidance of the industry specialization strategy, the internal capital market of COFCO is running efficiently generally.The fifth chapter is the research conclusion and suggestion. Based on the above study of COFCO, this chapter puts forward some suggestions, such as implementing limited professional group strategy, implementing flatting management, promoting to build the internal financial intermediaries and make Chinese capital more standard.In this paper, the main contribution is providing a specific case study for our country enterprise group internal capital market operation and its efficiency analysis. And to some extent, confirming the theory that the professional group strategy could exert its positive function of ICM. However, due to the information disclosure system in China is not perfect yet, it’s hard to get the financial data about the unlisted members of the companies. So the conclusion may be biased.