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

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Listed:
  • Joseph P. H. Fan

    () (The Chinese University of Hong Kong
    Australian National University)

  • Li Jin

    () (University of Oxford
    Peking University)

  • Guojian Zheng

    () (Sun Yat-sen University)

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.

Suggested Citation

  • Joseph P. H. Fan & Li Jin & Guojian Zheng, 2016. "Revisiting the Bright and Dark Sides of Capital Flows in Business Groups," Journal of Business Ethics, Springer, vol. 134(4), pages 509-528, April.
  • Handle: RePEc:kap:jbuset:v:134:y:2016:i:4:d:10.1007_s10551-014-2382-6
    DOI: 10.1007/s10551-014-2382-6
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    1. repec:eee:fambus:v:8:y:2017:i:2:p:99-108 is not listed on IDEAS
    2. repec:kap:jbuset:v:153:y:2018:i:4:d:10.1007_s10551-018-3917-z is not listed on IDEAS
    3. repec:eee:ememar:v:37:y:2018:i:c:p:83-97 is not listed on IDEAS

    More about this item

    Keywords

    Business group; Emerging market; Financial constraints; Expropriation; Corporate governance;

    JEL classification:

    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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