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Conference Name Proceedings of the 5th International Conference on Cooperation and Promotion of Information Resources in Science and Technology (COINFO 2010 E-BOOK)

Beijing,China,11.27-11.29,2010

ISBN: 978-1-935068-43-3 Scientific Research Publishing, USA

E-Book 754pp Pub. Date: November 2010

Category: Engineering

Price: $110

Title: Ownership Structure and Internal Capital Allocation in Group
Source: Conference Name Proceedings of the 5th International Conference on Cooperation and Promotion of Information Resources in Science and Technology (COINFO 2010 E-BOOK) (pp 662-665)
Author(s): Jun Shao, Shanghai Lixin University of Commerce, Shanghai, P.R.China, 201620
Zhiyuan Liu, School of Business of Nankai University, Tianjin, P.R. China, 300071
Qingfu Chai, Shanghai Lixin University of Commerce, Shanghai, P.R.China, 201620
Abstract: The paper presents a capital allocation model in business group in which ownership structure is added. The results show that external capital market and internal capital market are interacted. Internal capital market is more developed when external capital market is less developed, and the legal protection to investors is weak. Based on maximization of controlling shareholder wealth, CEO inclines to allocate internal capital to the less effective affiliated firms. Ownership structure is an important factor in internal capital allocation. Under pyramidal structure, the more divergence between control right and cash flow right, the more possibility to be allocated internal capital at the cost of the benefit of minority shareholders. The capital allocated to affiliated firm affects the level of effect exerted by the manager. The value of affiliated firms is determined by both the amount of capital allocated and managers efforts. The group value is determined by the value of affiliated firms.
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