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

Joseph P. H. Fan (), Li Jin () and Guojian Zheng ()
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Joseph P. H. Fan: The Chinese University of Hong Kong
Li Jin: University of Oxford
Guojian Zheng: Sun Yat-sen University

Journal of Business Ethics, 2016, vol. 134, issue 4, No 2, 509-528

Abstract: Abstract 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.

Keywords: Business group; Emerging market; Financial constraints; Expropriation; Corporate governance (search for similar items in EconPapers)
JEL-codes: G15 G31 G32 G34 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (14)

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DOI: 10.1007/s10551-014-2382-6

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