Internal capital market mergers in weak external market environment: An emerging market evidence

Wei Huang, Hong Zhang, Abhinav Goyal, Jason Laws

Research output: Journal PublicationArticlepeer-review

4 Citations (Scopus)


Using Chinese split-share structure reform as backdrop, we study the alternative theories explaining the change in objectives of internal capital markets (ICMs) after regulatory intervention. Focusing on related party merger and acquisitions, as the primary form of ICM transactions in China, we document significantly positive performance improvement among the acquiring firms around related party than nonrelated party merger and acquisitions in the period following the split-share structure reform. This evidence is particularly stronger among acquirers with lower institutional shareholding. Our findings are invariant to the length of performance evaluation window, matched samples, model specifications, acquirers' ownership structure, and business group affiliations. After controlling for alternative channels of tunnelling and propping, contrary to the popular belief, our findings support the bright-side view of ICMs postregulatory intervention in an emerging market set-up.

Original languageEnglish
Pages (from-to)1486-1505
Number of pages20
JournalInternational Journal of Finance and Economics
Issue number4
Publication statusPublished - 1 Oct 2019


  • China
  • M&A
  • internal capital market
  • related party
  • tunnelling

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics


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