The Study Of Debt Guarantee And Corporate Financial Distress In Chinese Listed Companies

The corporate financial distress question has received the concern of the foreign scholars since the thirties of the 20th century. The study on corporate financial distress in China has just started, mainly concentrated on the study of the listed company. And great majority studies regard ST as the sign of corporate financial distress .We continue to use this kind of method to define financial distress too. Since March 16,1998 security markets begin pursuing ST system, by the end of 2003, there are 178 special treated (ST) companies. Before these companies were special treated, 106 listed companies have offered debt guarantee for other companies. 43 companies of these 106 listed companies make the contingent liability become real debt because guaranteed companies default contracts. Therefore, the guarantee question of the listed company in China should cause close attention of academia. The research purpose of this text is to investigate whether there is a certain inherent relation about debt guarantee and financial distress in China from theoretical and empirical aspects.First of all, according to the current situation of debt guarantee in Chinese listed companies and on the basis of the survey on corporate financial distress researches, we emphasize the purpose of this text is to investigate whether there is a certain inherent relation about debt guarantee and financial distress in Chinese listed companies and put forward the research hypothesis of this text concretely. The hypothesis of this text is under the imperfect corporate governance structure and outside markets and narrow financing channels in China's present stage, debt guarantee for other companies is one of the important reasons to the corporate financial distress.Under this hypothesis, we divide it into four propositions concretely again:: Among all the listed companies that offer guarantee to other companies, there are remarkable differences between distressed companies and non-distressed companies. : In the companies that offer guarantee to other companies, it is positive relevant to guarantee and financial distress.: Expired guarantee is greater than non-expired guarantee in impact on corporate financial distress.: Affiliated guarantee is greater than non-affiliated guarantee in impact on corporate financial distress.Next, according to the agency theory of Jensen and Fama(1976) and the theory of separation of ownership and control of Fama and Jensen(1983),we can infer that the decisions of offer debt guarantee to others require the separation of decision management and decision control under the separation of corporate ownership and control. That is to say there should have perfect corporate governance, only in this way can we minimize the agency cost and improve corporate performance. Then, we analyze the defects of the corporate governance structure in China. Different from developed countries, the market-oriented process in China is a kind of governmental behavior to a great extent, not the course of the market itself developing gradually. So there are still marks of planned economy in a lot of respects. The management and control have not totally separated, and the situation that large shareholders and inside people control the listed company is very serious. Financial institutions, such as bank, etc. have not played a positive supervisory role and lack assessing of the corporate credit. And because the financing channel is limited, debt financing becomes the main composition of the capital structure. Therefore we infer guarantee to others become a way of big shareholders appropriating the interests of minority shareholders, and a way of weak companies promoting financing ability. All these are apt to cause the corporate financial distress.Later we describe the sample and variables. Our sample included 106 distressed listed companies and 106 non-distressed listed companies that offered guarantee to others, and these 106 distressed listed companies were special treated from 1998 to 2003. The variables include 8 influenc...