Coinsurance within Business Groups: Evidence from Related Party Transactions in an Emerging Market
Management Science, Forthcoming
36 Pages Posted: 14 Jan 2012 Last revised: 17 Jul 2013
Date Written: November 19, 2012
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.
Keywords: Busines Group, Coinsurance, Related Party Transactions, Credit Crunch, China Economy
JEL Classification: G32; G34
Suggested Citation: Suggested Citation