The impacts of internal capital allocation efficiency on R&D investments: evidence from China

This research utilizes hand-collected data on business groups’ pyramidal equity structure to examine the impacts of internal capital markets on research and development (R&D) investments in China. Empirical findings show that the allocation efficiency of the internal capital market positively correlates with R&D investments. We further provide evidence of a U-shape relationship between pyramidal layers and R&D investments for state-owned business groups. For non-state-owned business groups, however, there is an opposite impact pattern on the relation between internal capital markets and R&D investments.