Research On The Internal Capital Market Operation And Allocative Efficiency In Conglomerate

Since the reform and opening up,China's economy has developed rapidly.The number of conglomerate increased and the scale expanded significantly.Accordingly,the financing demand of conglomerate also increased.On the one hand,our financial system is still not perfect,and there is asymmetric information in the external capital market.On the other hand,in the process of diversification,the internal capital market emerged because it reduced transaction costs,weakened information asymmetry,stimulated supervision and incentives and members could share resources with each other.However,there are also many weaknesses in the internal capital market.The "more-money effect" leads to excessive investment,new agency problem appears due to the expansion of enterprises creates to cause “cross subsidization”,and the internal capital market under weak supervision becomes the tool of large shareholder benefits transport.The internal capital market is a double-edged sword,and its allocation efficiency determines whether enterprise continues to exist or not.With the improvement of China's economic status,there are frequent mergers and acquisitions by domestic enterprises in the domestic market and the international market.Conglomerate has become a common form of organization.Under the background of building and improving multi-level capital markets,as another place of resource allocation,the internal market also needs standardization,but there is still a great prospect for the development of domestic research on the internal capital market.Therefore,the study on internal capital markets in conglomerates has theoretical and practical value.The main content of this paper is divided into five sections.The first chapter introduces the research background and significance of this study,the framework and content of this paper,the methodology used in this paper and the major contributions and deficiencies of this study.The second chapter at first defines conglomerate and internal capital market.Then it reviews the three elements of the internal capital market,namely the operation mode,effectiveness,and influence factors,and reviews relevant literature at home and abroad.In the third chapter firstly,transaction cost theory,asymmetric information theory and principal-agent theory are taken as the theoretical basis for the existence of the internal capital market.Then affiliate transactions and the internal capital market operations are discriminated from definition and characteristic.Affiliate transactions are regarded as manifestations of the internal capital market operations.So the affiliate transactions disclosed in the financial statements are the main body of the internal capital market operation mode.And then it analyzes the impact on the internal capital market operation from three aspects: external market environment,group strategy and diversification.Finally,the evolving process of method that measures the efficiency of internal capital market operation is combed out,and the most widely used method —— cash flow-sensitivity based on ROA is adopted to measure the allocative efficiency in the HNA Group.The fourth chapter firstly sorts out the HNA Group's shareholding structure and industrial layout,and changes in the shareholdings and business of the listed companies within the group,so that the analysis will keep close connection with the group.Then it summarizes the main operation modes in the HNA Group's internal capital market,analyzes the internal transactions based on articulation,and concludes the functions of the HNA Group's internal capital market from both qualitative and quantitative aspects.Finally,it measures the allocative efficiency between eight listed companies and within single listed company based on the improved cash flow-sensitivity method.The company development level and the characteristics of the assets are considered to modify the results.And considering the development strategy,it analyzes how the external market environment,group strategy and diversification influences the allocative efficiency in the HNA Group.The fifth chapter,based on the analysis in the previous chapter,concludes that the HNA Group's internal capital market is active,eases the group's financing constraints,and promotes the diversified industrial layout of the group.However,the function of financial intermediary in the group is weak and the internal capital market operates inefficiently.In order to standardize the development of the internal capital market in conglomerates,it believes that we should perfect the external regulatory system,strengthen information disclosure,and promote the whole group to listed company.The conglomerate itself should formulate development strategies properly and maintain appropriate diversification.The main contributions of this paper are: first,this paper measures the allocative efficiency of the internal capital market from two levels,between eight listed companies of the HNA Group and within single listed company.Second,in the process of measuring the operation efficiency of the internal capital market in the HNA Group,it not only analyzes the results of calculations,but also considers the development level of subsidiaries and the proportion of long-term assets in total assets.Third,the paper focuses on analyzing the operation modes of the HNA Group's internal capital market.It not only examines the scale of sffiliate transactions,but also conducts a comparative analysis through articulation.And deeply analyze the impact on capital allocation,shareholding structure and industrial layout.However,there are deficiencies.The lack of data about unlisted companies and segment leads to the one-sidedness of the conclusion.