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The Impact of Business Groups on Investment Efficiency: Does Capital Allocation Matter?

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  • Wenhao Tan
  • Shuangli Yu
  • Zhenpeng Ma

Abstract

Using data on internal capital markets in China, this paper examines the influence of internal capital markets on investment efficiency in business groups. The empirical results show that using internal capital markets can alleviate over invests within business groups. In addition, it can alleviate deficiencies in R&D investment in business groups effectively. The impact of internal capital markets on investment efficiency varies between state-owned enterprises and private enterprises. At private enterprises, internal capital market operations significantly alleviate overinvestment and promote R&D investment. However, at state-owned enterprises, internal capital market operations increase overinvestment and reduce investment in R&D.

Suggested Citation

  • Wenhao Tan & Shuangli Yu & Zhenpeng Ma, 2018. "The Impact of Business Groups on Investment Efficiency: Does Capital Allocation Matter?," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 54(15), pages 3539-3551, December.
    • Handle: RePEc:mes:emfitr:v:54:y:2018:i:15:p:3539-3551
    DOI: 10.1080/1540496X.2018.1509791
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    Cited by:

    1. Bo Zeng & Weimin Zhang & Defang Ma & Chenyang Zhang & Xiao Liu, 2023. "The Impact of Group Control on the Effectiveness of Enterprise Innovation: An Empirical Study," Sustainability, MDPI, vol. 15(13), pages 1-15, July.
    2. Tan, Wenhao & Li, Xiang & Zhao, Jianfeng & Cao, Lin & Wang, Haolun, 2023. "Internal capital markets and employee wage: Evidence from China," International Review of Financial Analysis, Elsevier, vol. 88(C).
    3. Shahzad, Farrukh & Fareed, Zeeshan & Wang, Zhenkun & Shah, Syed Ghulam Meran, 2020. "Do idiosyncratic risk, market risk, and total risk matter during different firm life cycle stages?," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 537(C).
    4. Yang, Zhonghai & Lu, Yang & Tan, Wenhao, 2021. "Monetary policy tightening, accounting information comparability, and underinvestment: Evidence from China," Economic Analysis and Policy, Elsevier, vol. 70(C), pages 123-147.
    5. Farrukh Shahzad & Zeeshan Fareed & Bushra Zulfiqar & Umme Habiba & Muhammad Ikram, 2019. "Does abnormal lending behavior increase bank riskiness? Evidence from Turkey," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 5(1), pages 1-15, December.
    6. Zheng, Li & Ma, Pengcheng & Hong, Jacky Fok Loi, 2022. "Internal embeddedness of business group affiliates and innovation performance: Evidence from China," Technovation, Elsevier, vol. 116(C).
    7. Zhiwen Su & Mingyu Zhang & Jianjun Sun & Wenbing Wu, 2023. "Agribusiness diversification and technological innovation efficiency: A U‐shaped relationship," Agribusiness, John Wiley & Sons, Ltd., vol. 39(2), pages 322-346, March.
    8. Ghazali, Ahmad & Khaw, Karren Lee-Hwei & Zainir, Fauzi Bin, 2022. "Development vs. political views of government ownership: How does it affect investment efficiency?," Finance Research Letters, Elsevier, vol. 48(C).

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