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Coinsurance within Business Groups: Evidence from Related Party Transactions in an Emerging MarketNan JiaUniversity of Southern California - Marshall School of Business Jing ShiAustralian National University - Research School of Finance, Actuarial Studies and Applied Statistics; Financial Research Network (FIRN) Yongxiang WangUniversity of Southern California - Marshall School of Business November 19, 2012 Management Science, Forthcoming Abstract: Using novel transaction-level data on Chinese business groups, this study provides the first direct evidence of the coinsurance theory of business groups, by investigating when different types of internal resources are transferred within a business group. We find that in Chinese business groups, a credit crunch experienced by the controlling shareholding firm (the “controller”) of a publicly listed firm increases the loan-based related party transactions (RPT) including loan guarantees and intercorporate loans provided by the listed firm to the controller. In turn, when the listed firm’s performance dips, the controller and its son firms provide more support to the listed firm in the form of non-loan-based RPTs. These findings directly show the dynamic interactions of members within business groups.
Number of Pages in PDF File: 36 Keywords: Busines Group, Coinsurance, Related Party Transactions, Credit Crunch, China Economy JEL Classification: G32; G34 Accepted Paper SeriesDate posted: January 14, 2012 ; Last revised: November 20, 2012Suggested CitationContact Information
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