TY - JOUR
T1 - Investment-cash flow sensitivity to internal capital markets and shareholding structure
T2 - evidence from Taiwanese business groups
AU - Yeh, Yin-Hua
AU - Lin, Jui-Chia
PY - 2021/12
Y1 - 2021/12
N2 - This study examines to what extent investment-cash flow sensitivity in business groups’ is affected by internal capital markets (characterized by related-party transactions) and shareholding structure. We approach the subject by exploring potential financing advantages as contrasted with the agency problem. Using a hand-collected data set to quantify related-party transactions and classify control-enhancing structures, we find that group-affiliated firms with a higher scale of related-party transactions have lower levels of investment-cash flow sensitivity. Further, our results show that related-party transactions are both associated with investment opportunity and the type of shareholding structure, which support both financing advantage and agency hypotheses. The evidence shows that business groups transfer intra-group capital from low-growth to high-growth member firms, but it also demonstrates that the outcomes of these transfers are affected by the type of control-enhancing structure. Additional analysis shows that the agency problem tends to dominate the financing advantage effect in cross-shareholding structures, which leads to overinvestment.
AB - This study examines to what extent investment-cash flow sensitivity in business groups’ is affected by internal capital markets (characterized by related-party transactions) and shareholding structure. We approach the subject by exploring potential financing advantages as contrasted with the agency problem. Using a hand-collected data set to quantify related-party transactions and classify control-enhancing structures, we find that group-affiliated firms with a higher scale of related-party transactions have lower levels of investment-cash flow sensitivity. Further, our results show that related-party transactions are both associated with investment opportunity and the type of shareholding structure, which support both financing advantage and agency hypotheses. The evidence shows that business groups transfer intra-group capital from low-growth to high-growth member firms, but it also demonstrates that the outcomes of these transfers are affected by the type of control-enhancing structure. Additional analysis shows that the agency problem tends to dominate the financing advantage effect in cross-shareholding structures, which leads to overinvestment.
KW - Business groups
KW - Internal capital market
KW - Investment-cash flow sensitivity
KW - Related-party transactions
KW - Shareholding structure
UR - http://www.scopus.com/inward/record.url?scp=85083371337&partnerID=8YFLogxK
U2 - 10.1007/s40821-020-00157-7
DO - 10.1007/s40821-020-00157-7
M3 - Article
AN - SCOPUS:85083371337
SN - 1309-4297
VL - 11
SP - 637
EP - 657
JO - Eurasian Business Review
JF - Eurasian Business Review
IS - 4
ER -