Internal capital markets and risk-taking: Evidence from China

Wenhao Tan, Ying Chen, Yun Sun, Xiuyuan Guo and Ziwei Li

Pacific-Basin Finance Journal, 2023, vol. 78, issue C

Abstract: The internal capital market not only improves the group's resource allocation efficiency, but also has an impact on the behavior of listed companies. However, there is little literature examining the impact of intra-group capital market operations on corporate risk-taking. Based on this, using hand-collected internal capital markets data of Chinese business groups from 2007 to 2018, this study examines the impact of the internal capital market on risk-taking behavior and its transmission path. The findings show that the utilization of internal capital markets by firms helps to enhance the overall risk-taking level of the group. And this facilitation effect is more pronounced in private firms, firms with higher industry concentration, and better internal controls. The mechanism shows that internal capital market enhances the group risk-taking level mainly by alleviating financing constraints and relying on the linked guarantee mechanism. Furthermore, we find that the enhanced risk-taking level of the internal capital market has a significant positive impact on firm sustainable growth. The above findings enrich the research on internal capital markets and corporate risk-taking, and are important for guiding managers to take reasonable risk management.

Keywords: Internal capital markets; Capital allocation; Cash flow; Business group; Risk-taking (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0927538X23000343
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:pacfin:v:78:y:2023:i:c:s0927538x23000343

DOI: 10.1016/j.pacfin.2023.101968

Access Statistics for this article

Pacific-Basin Finance Journal is currently edited by K. Chan and S. Ghon Rhee

More articles in Pacific-Basin Finance Journal from Elsevier
Bibliographic data for series maintained by Catherine Liu ().