Revisiting the Bright and Dark Sides of Capital Flows in Business Groups

Prior studies report that the business group structure and the associated intra-group capital flows are prone to conflicts of interest between controlling shareholders and minority investors. Yet business group is a prevalent and stable structure around the globe, particularly where capital markets...

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Bibliographic Details
Published in:Journal of business ethics 2016-04, Vol.134 (4), p.509-528
Main Authors: Fan, Joseph P. H., Jin, Li, Zheng, Guojian
Format: Article
Language:English
Subjects:
Bank ownership
Business and Management
Business entities
Business Ethics
Capital investments
Capital market
Capital markets
Capital mobility
Capital movement
Capital movements
Cash flow
China
Conflicts of interest
Corporate governance
Economic efficiency
Education
Efficiency
Emerging markets
Entrepreneurship
Ethics
Financial support
Governance
Investments
Investors
Management
Markets
Parental investment
Philosophy
Quality of Life Research
Reforms
Regression analysis
Statistical analysis
Stockholders
Subsidiary companies
Trade
Trade credit
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Summary:Prior studies report that the business group structure and the associated intra-group capital flows are prone to conflicts of interest between controlling shareholders and minority investors. Yet business group is a prevalent and stable structure around the globe, particularly where capital markets are underdeveloped. Using data from China, this paper empirically studies the trade-off between the negative and positive roles played by intra-group capital flows and tests the efficiency implications of such trade-off. We find that from the perspective of the whole group, intra-group capital flows are most efficient when the groups are least subject to conflicts of interest between controlling shareholders and minority shareholders and when they face strong external financing constraints.
ISSN:0167-4544
1573-0697
DOI:10.1007/s10551-014-2382-6