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Research on the Impact on the Efficient Allocation of Internal Capital Market from Ultimate Controlling Shareholders

Author: WeiXinJing
Tutor: LiuHongWei
School: Shandong University
Course: Accounting
Keywords: Ultimate Controlling Shareholder The Degree of Separation The Allocation Efficiency Internal Capital Market
CLC: F830.9
Type: Master's thesis
Year: 2010
Downloads: 169
Quote: 0
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Abstract

In the development of modern economic, capital allocation is the core of the whole allocation of resources. Capital allocation primarily works by external capital markets and internal capital markets. To emphasize on the importance of the external capital market is based on the premise that the allocation of the external capital market is more efficient than that of enterprise’s own capital allocation. But more and more scholars came to realize that when external capital market in the emerging economic market is undeveloped, internal capital market is more efficient than external capital market on some aspects, such as allocation of capital, information symmetry, incentives and supervision. What’s more,since the results of study written by LLS were published at 1999,a growing number of scholars had made full use of empirical research methods and the event study method to verify the conclusion that more and more countries,there exists the ultimate controlling shareholder in the company. The ultimate shareholder uses the function of internal capital market to allocation of resources to meet the demand of its own interests. Based on the reality in china, this paper is prepared to use the separation degree between cash flow rights and control rights from the ultimate controlling shareholder and the efficient allocation of capital market to verify the impact from the ultimate controlling shareholder on the allocation of capital market.The structure of this paper is as follows:first of all, Chapter One is the introduction. In this section, the research problems, the research importance and the purpose are generalized. And also some key concepts are defined; Second, Chapter Two and Chapter Three are the literature review and the background analysis. Review and comments on the internal capital markets, such as the existence of internal market, the boundary and the efficient allocation of the internal market, to make full understand of the internal capital market. Meanwhile, the related theories on ultimate controlling shareholder are reviewed to understand the cash flow rights, the control rights and the level and the measurement of the ultimate controlling shareholder.According to the study above, the data is selected on the public information and data of the listed companies. Using the indirect method measures the impact of ultimate controlling shareholder on the efficient allocation of the internal capital market. In accordance with the ultimate controlling shareholder and the other variables, the establishment of multiple regression research analyzes the impact on the allocation of internal capital market. After that, the study found that the listed companies that make use of the diversification strategy are less efficient in the allocation of capital. That may be caused by the limited rationality of the management. As the number of the projects that the company takes on increases, the management may not be able to have the full information and data related. What’s more, the ultimate controlling shareholder may make entrenchment or incentive to effect on the listed companies in accordance with the differences of industries.At final, it comes to the conclusions and based on the discussion, the possible problems and prospect in the research are put forward.

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