Internal capital markets, ownership structure, and investment efficiency: Evidence from Taiwanese business groups

James Juichia Lin and Yin-Hua Yeh

Pacific-Basin Finance Journal, 2020, vol. 60, issue C

Abstract: This study uses a unique data set to thoroughly investigate how the financing provided by a business groups' internal capital markets and control-enhancing ownership structure relate to investment efficiency. We find that group-affiliated firms that make more intensive use of related-party transactions that facilitate an internal capital market exhibit a reduced probability of under-investment. We also find that pyramidal (cross) ownership improves (weakens) investment efficiency suggesting different types of control-enhancing structure have strongly contrasting effects on investment efficiency. These findings reveal both the financing advantages and disadvantages of business groups.

Keywords: Internal capital market; Business groups; Cross shareholding; Pyramidal shareholding (search for similar items in EconPapers)
JEL-codes: G31 G32 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:pacfin:v:60:y:2020:i:c:s0927538x18305390

DOI: 10.1016/j.pacfin.2020.101284

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