| Abstract | The last decade has seen lots of business groups, which means a group of listed companies controlled under common administrative or financial control, sprung up in the China stock market, arousing intense interest both from the academia circles and practitioners to study their increasing influence to our capital market and economy development. However, what are the economic results of the business groups? Do they develop a more efficient internal capital market (ICM) so that behaving better performance compared with other companies? Or, their performances are worse due to their poorer governance? In order to answer these questions, we conduct an empirical study to see the relations between group companies and their performance, under the comprehensive descriptions of their current development and internal organization structures, using our manual collection of data, including 271 business groups from 2003 to 2011, and 4422 listed companies. We find that, the performance of group companies, measured by the earnings abilities and cash flow, behave worse than other companies, which means that the negative effects of their corporate governance may be larger than the positive effect of the ICM. On the other hand, the property of state ownership, the higher ownership of biggest shareholder and the more efficient of law environment could mitigate the net negative effects. At last, we classify the whole listed companies into three groups, including the business groups, non-business groups, which means a group of companies but only has one listed company controlled by the same identity, and the individual companies. We find that, the performances of business groups companies are the worst, the non-business groups companies second and the individual companies the best. |