A Research On The Relationship Between Diversified Strategy And Allocative Efficiency In The Internal Capital Market

Diversification strategy is a way of resource allocation of enterprise groups, and the internal capital market is the main theory to explain the diversification strategy with the continuous advancement of group diversification. The scholars do not have enough persuasive conclusions on the advantages and disadvantages of the diversification strategy and the internal capital market allocation efficiency. Considering the transition period of China, a special phenomenon of family enterprise, as the subject investigated, this paper will study the relationship between the diversification strategy "family enterprise" (diversification levels, diversification types) and internal capital market allocation efficiency, and then do research on the regulation effect of different equity characteristics on the relationship between diversification strategies and internal capital market allocation efficiency.In the study, we find firstly that there are active internal capital markets, but the markets are still during the developing phase, in which the allocation efficiency of the internal capital markets is lower, and the "family enterprise" group is still unable to make full use of the synergistic effect and the advantages of reducing the risk of internal capital markets. Secondly, there is a peak value of diversification levels and the peak values are different between the related diversification and non-related diversification, as the diversification degree of "family enterprise" has a U-type relationship with allocation efficiency of the internal capital market. The peak value of the related diversification of the family enterprise is higher than the non-related. As the level of the diversification over the peak value, the risk effect of diversification is huger than the synergistic effect, which may lead to the reduction of allocation efficiency of the internal capital market. Thirdly, the four main characteristics, the equity balance index, managers holding shares, separation of ownership and control and equity nature, will all affect the allocation efficiency of the internal capital market directly. Beyond the direct influences, different equity characteristics will also affect the allocation efficiency of internal capital markets through the impact on the choice among different family enterprise diversification strategies in many ways, like positively regulating the diversification strategy and the allocation efficiency of the internal capital market by the equity balance index, while it has no adjustment effect to make managers hold shares, and the separation of the ownership and control does the negative part. Also, the allocation efficiencies in the internal capital market with separated equity characteristics are different. The efficiency of the family enterprises the state owned is higher than it of the private owned enterprises.It is emphasized that based on the allocation theory of the internal capital market, we can figure out the existence of the market in Chinese family enterprise by empirical test at first and then calculate the efficiency of the allocation. The paper shows the influence of the diversification strategy on the allocation efficiency according to the governance effect with different equity characteristics. To conclude, more policy suggestions benefit to the development of the family enterprise diversification are provided. Also, the adjustment impacts of the governance effect on the allocation efficiency about the diversification strategy and internal capital market are included. At the same time, it involves the measures the family enterprise should take and how to design the equity system in order to improve the efficiency. After all, these advices can provide several theoretical references for the creation and development of the internal capital market in the family enterprise.