"Evergrande" Illusions:Business Group,Short-Term Financing And Long-Term Investment And Business Risk

How can the distinctive organisational form of a business group affect business risk?Accounting for the behaviour of short-term financing and long-term investment(SFLI)and based on the internal capital market and the illusion of “too big to fail”,this paper constructs a basic analysis framework and performs an empirical test by drawing on the data of listed companies from 2003 to 2019.The results of the study indicate the following.First,business groups have a significant positive impact on SFLI.Policy-driven instrumental variable regression and event studies based on the status change of business groups provide further evidence of the causal effect of business groups on SFLI.Second,the influence of business groups on SFLI is significantly heterogeneous.At the group level,the greater the expansion scale,the bigger the impact of business groups on SFLI.At the level of member companies,this impact is most significant in large companies,companies with a high level of financing constraints and companies with a low level of governance.Finally,the paper further discusses business risk,noting that the illusion of “too big to fail” may come from only noting short-term risk reduction and ignoring the long-term risk accumulation,and SFLI presents a significant contagion effect within the business group.