Journal of Business Ethics

, Volume 134, Issue 4, pp 509–528 | Cite as

Revisiting the Bright and Dark Sides of Capital Flows in Business Groups

  • Joseph P. H. Fan
  • Li Jin
  • Guojian ZhengEmail author


Prior studies report that the business group structure and the associated intra-group capital flows are prone to conflicts of interest between controlling shareholders and minority investors. Yet business group is a prevalent and stable structure around the globe, particularly where capital markets are underdeveloped. Using data from China, this paper empirically studies the trade-off between the negative and positive roles played by intra-group capital flows and tests the efficiency implications of such trade-off. We find that from the perspective of the whole group, intra-group capital flows are most efficient when the groups are least subject to conflicts of interest between controlling shareholders and minority shareholders and when they face strong external financing constraints.


Business group Emerging market Financial constraints Expropriation Corporate governance 

JEL Classification

G31 G32 G34 G15 



We thank the comments and suggestions from guest co-editors Douglas Cumming, Edward Lee, Wenxuan Hou, two anonymous referees, Randall Morck, Bernard Yeung, seminar participants of University of Queensland, Queensland University of Technology, Shanghai Advanced Institute of Finance, participants of 2008 NBER China Workshop, 2009 China International Conference in Finance, 2009 CAF-FIC-SIFR Emerging Market Finance Conference, 2009 AFA Annual Conference, the Global Crossroads Conference at Stanford, Ackerman Conference on Corporate Governance at Bar Ilan University, and 2013 JBE Special Issue Conference in Beijing. Zheng thanks the National Natural Science Foundation of China (Approval Numbers 71272199, 71002057) for financial support.

Supplementary material

10551_2014_2382_MOESM1_ESM.docx (43 kb)
Supplementary material 1 (DOC 44 kb)


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Copyright information

© Springer Science+Business Media Dordrecht 2014

Authors and Affiliations

  1. 1.CUHK Business School and Institute of Economics & FinanceThe Chinese University of Hong KongShatinHong Kong, China
  2. 2.Research School of Finance, Actuarial Studies and Applied StatisticsAustralian National UniversityCanberraAustralia
  3. 3.Saïd Business School University of OxfordOxfordUK
  4. 4.Guanghua School of ManagementPeking UniversityBeijingChina
  5. 5.Sun Yat-sen Business SchoolSun Yat-sen UniversityGuangzhouChina

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