Business groups in China

Jia He (First Author), Oliver Meng Rui (Participant Author), Xiaolei Zha (Participant Author), Xinyang Mao (Participant Author)

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Abstract

We investigate whether business groups in China act as internal capital markets, in an environment that is characterized by a high level of government intervention, a weak legal system, and an underdeveloped financial market. We study how institutional factors, such as the ultimate owner and level of market development, shape the role of these business groups. We find that business groups help member firms overcome constraints in raising external capital, and that the internal capital market within a business group is more likely to be an alternative financing channel among state-owned firms than among private firms. We also find that the internal capital market is more likely to help those affiliated firms which are private, local government owned relative to those owned by central government, or located in regions with a well-developed institutional environment. We present evidence of the role of business groups in risk sharing among affiliated firms, but find that business group affiliation has no impact on firm accounting performance. This study sheds new light on the theory of the firm and its boundaries, and provides a better understanding of China's rapidly growing economy.
Original languageEnglish
Pages (from-to)166-192
JournalJournal of Corporate Finance
Volume22
DOIs
Publication statusPublished - 2013

Corresponding author email

oliver@ceibs.edu

Keywords

  • Business groups
  • CORPORATE GOVERNANCE
  • DIVERSIFICATION
  • EMERGING MARKETS
  • FINANCING CONSTRAINTS
  • Financial constraints
  • GROUP AFFILIATION
  • GROWTH
  • INEFFICIENT INVESTMENT
  • INTERNAL CAPITAL-MARKETS
  • Institutional environment
  • OWNERSHIP
  • PERFORMANCE
  • Risk sharing
  • Ultimate owner

Indexed by

  • ABDC-A*
  • Scopus
  • SSCI

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