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

See all articles by Nan Jia

Nan Jia

University of Southern California - Marshall School of Business

Jing Shi

Macquarie University

Yongxiang Wang

University of Southern California - Marshall School of Business

Date Written: November 19, 2012

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.

Keywords: Busines Group, Coinsurance, Related Party Transactions, Credit Crunch, China Economy

JEL Classification: G32; G34

Suggested Citation

Jia, Nan and Shi, Jing and Wang, Yongxiang, Coinsurance within Business Groups: Evidence from Related Party Transactions in an Emerging Market (November 19, 2012). Management Science, Forthcoming, Available at SSRN: https://ssrn.com/abstract=1985174 or http://dx.doi.org/10.2139/ssrn.1985174

Nan Jia

University of Southern California - Marshall School of Business ( email )

701 Exposition Blvd
Los Angeles, CA 90089
United States

Jing Shi

Macquarie University ( email )

Eastern Rd.
North Ryde
Sydney, NSW 2109
Australia

HOME PAGE: http://https://researchers.mq.edu.au/en/persons/jing-shi

Yongxiang Wang (Contact Author)

University of Southern California - Marshall School of Business ( email )

701 Exposition Blvd
Los Angeles, CA 90089
United States

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