Impacts of Internal Capital Market in Group on Financing Constrains of Group-Affiliations:Evidences from Chinese Groups

Based on related literatures and institution background in China,in this paper we empirically investigate several issues as follows:(1) Under the Chinese special institution background,whether the internal capital allocation in groups has the effects on financing con- straints their group-affiliations faced?(2)Whether the financing constraints group-affiliations faced with the different ownership nature are different?(3) Whether the external marketabili- ty environment does affect the function which relaxes the financing constraints the group-affil- iations faced?(4) Under the different ownership structure,whether the internal capital allo- cation in groups has the different effects on the financing constraints the group-affiliations faced? By analyzing the effects of internal capital market on financing constraints under the background of special institution in China,we find that the internal capital market in groups has easing financing constraints function.The internal capital markets in state-owned groups do better on this function than their counterpart.The firms affiliated by private-owned groups with small size,fast growth,and small divergence between control right and cash flow right. their financing constraints are large.External environment may affect the function of internal capital market for groups.In areas where the level of capital marketnization is high,the firm- affiliated by groups have little financing constraints.The financing constraints of affiliated firms with large divergence between control right and cash flow right are not relaxed. Possible contributions are showed here:Firstly.as we know,this paper empirically in- vestigates the effects of internal capital market in group on financing constraints faced by their group-affiliations,consequently which will be beneficial for us to understand clearly the be- havior of internal capital allocation in group.Secondly,we still research the effect of Chinese background on the relation,which further rich and perfect the internal capital market theory in group.Thirdly,the given conclusions in the paper provide some policy suggestions on how to develop internal capital market in group and how to supervise and manage the behaviors of internal capital allocation.