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Coinsurance Within Business Groups: Evidence from Related Party Transactions in an Emerging Market

Author

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  • Nan Jia

    (Department of Management and Organization, Marshall School of Business, University of Southern California, Los Angeles, California 90089)

  • Jing Shi

    (International Institute for Financial Studies, Jiangxi University of Finance and Economics, 330013 Jiangxi, People's Republic of China; and Research School of Finance, Actuarial Studies and Applied Statistics, Australian National University, Canberra ACT 0200, Australia)

  • Yongxiang Wang

    (Department of Finance and Business Economics, Marshall School of Business, University of Southern California, Los Angeles, California 90089)

Abstract

Using novel transaction-level data on Chinese business groups, this study provides the first direct evidence of the coinsurance theory of business groups by investigating when different types of internal resources are transferred within a business group. We find that in Chinese business groups, a credit crunch experienced by the controlling shareholding firm (the “controller”) of a publicly listed firm increases the loan-based related party transactions (RPTs) including loan guarantees and intercorporate loans provided by the listed firm to the controller. In turn, when the listed firm's performance dips, the controller and its son firms provide more support to the listed firm in the form of non-loan-based RPTs. These findings directly show the dynamic interactions of members within business groups. This paper was accepted by Bruno Cassiman, business strategy.

Suggested Citation

  • Nan Jia & Jing Shi & Yongxiang Wang, 2013. "Coinsurance Within Business Groups: Evidence from Related Party Transactions in an Emerging Market," Management Science, INFORMS, vol. 59(10), pages 2295-2313, October.
    • Handle: RePEc:inm:ormnsc:v:59:y:2013:i:10:p:2295-2313
    DOI: 10.1287/mnsc.1120.1703
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