Revisiting the Bright and Dark Sides of Capital
Author : karlyn-bohler | Published Date : 2025-06-27
Description: Revisiting the Bright and Dark Sides of Capital Flows in Business Groups Joseph P H Fan The Chinese University of Hong Kong Li Jin Oxford University Peiking University Guojian Zheng Sun Yatsen University Basic Business Group Structures
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Transcript:Revisiting the Bright and Dark Sides of Capital:
Revisiting the Bright and Dark Sides of Capital Flows in Business Groups Joseph P. H. Fan The Chinese University of Hong Kong Li Jin Oxford University & Peiking University Guojian Zheng Sun Yat-sen University Basic Business Group Structures Joseph P.H. Fan Organization and Value 2 Parent Co Parent Co V=50% Y V=20% Z V=C=10% Z V=C=50% Y V = 20%, weakest link in the chain, C = 10%. Pyramid structure allows leveraging up in control Ownership Joseph Fan 3 Fusun Group (Shanghai, China) 20％ Iron&Steel 25％(2) Commerce Medicine 24.53％ Estate 10% 10% 22% 5% 11.95%(2) 10％ 58% 95% 13.53％ 90.3% 20％ 90％ 1.94％ 10％ 49％(2) 15.04％(2) 26.04％(1) 70.95％ 11.36％ 8.81％％ 43.33％ (2) 30％ 3.77％ 30％ 67.12％ 36.03％(1) 48％(2) 20％ 21％ Shanghai Guangxin Technology Development Co. Ltd. Shanghai Fusun High Technology (Group) Co. Ltd. NISC (600282) FORTE (HK2337) YYTM (600655) 53.92％ Nanjing Iron &Steel United Co.,Ltd. Shanghai Fusun Pharmaceutical Development Co. Ltd. Shanghai Fusun I.T. Development Co. Ltd. (Subsidiary) LRGF (600285) Tianjin Pharmaceutical Holdings, Ltd. TJPC (600488) China Medical Holding Co. ACCORD PHARM (000028) Shanghai Friendship-Fusun (holding) Co. Ltd. SFGIC (600827) Tangshan Jianlong Steel Co. Ltd. Lianhua Supermarket (HK0980) Fusun Pharm (600196) Zhaojin Mining Co. Ltd. JianMin Pharm (600976) Shanghai Fusun High Technology Co. Ltd. Shanghai Fusun Business Investment Co. Ltd. Liang Xinjun GUO Guangchang Wang Qunbin Fan Wei Business Group Structure v.s. Conglomerate Structure Group-like organizations are commonplace in the world. Comparing with the conglomerate organization Similarity: complex internal resource flows Difference: legal boundaries, top down control as oppose to horizontal control, complex ownership structure Because divisions are legally separate entities in a business group, intra-group capital flow becomes an issue to outside minority owners Costs of the Group Structure Expropriation of minority shareholders by the controlling parent, e.g., tunneling(Johnson et al.,2000) From the perspective of the whole group, such “tunneling” might not be a zero-sum game. additional resources to cover up tunneling, potential legal penalties, ex ante distortion of incentives on investments Investors not systematically fooled, the insider of the business group ultimately bears the welfare loss from tunneling. Cost of the tunneling is reflected in lower security prices (Claessens et al., 2002; La Porta et al., 2002). Firms controlled by Pyramids are traded with a discount across all public traded East Asian Firms (Claessens, Djankov, Fan, Lang, Journal of Finance 2002; Based on 3000 East Asian Firms) Ownership Joseph Fan 6 Motivation Given the costly group structure, what
