Internal capital markets, ownership structure, and investment efficiency: Evidence from Taiwanese business groups
This study uses a unique data set to thoroughly investigate how the financing provided by a business groups' internal capital markets and control enhancing ownership structure relate to investment efficiency. We find that group affiliated firms that make more intensive use of related party transactions that facilitate an internal capital market exhibit a reduced probability of under investment. We also find that pyramidal (cross) ownership improves (weakens) investment efficiency suggesting different types of control enhancing structure have strongly contrasting effects on investment efficiency. These findings reveal both the financing advantages and disadvantages of business groups.