An Analysis On Effect Of The Associated Guaranty

Loan guarantee has been Playing an increasingly important role in the development of China's market economy. To obtain a good business environment and stable trading partners, listed companies provide guarantees to affiliated enterprises within the group,which meet the financing needs of the normal business and improve the level of the financing of enterprises or enterprise groups.The future economic benefits of the Listed companies will not be damaged. There are two aspects of the financing effects of loan guarantee to the affiliates. Firstly, Loans on behalf of the enterprise group result in an increase of the strength of their own loans. Secondly, credit guarantee clears financial obstruction caused by poor credit and extends chain of financial transactions, improving the level of corporate financing.On the other hand, major shareholder's take advantage of dominance by means of the related-party loan guarantee of listed companies so as to embezzlement of interest against small shareholders, which has reduced the future economic benefits of listed companies, affecting the normal operation of listed companies.The related-party loan guarantees of listed companies have been considered as one of the main means to embezzlement of interest against small shareholders in much of the previous study, ignoring its original function played in corporate financial economy.This essay amended the previous study results of related-party loan guarantee based on empirical data from 2006 to 2008 years.First of all,the related-party loan guarantee that listed companies provided to their subsidiaries is mainly due to the needs of financing while that to controlling shareholders and associated is the controlling shareholder's tunneling behavior. Further,we discuss the different effect of the related-party loan guarantees to enterprise value of listed companys that provide to their controlling shareholders and the subsidiaries.Finally, there are some suggestions as follows:loan guarantees of the listed companies should not belittled in some extent. Moreover,more independent board of directors system and the reputation mechanism be established. Futher,the legal environment should be improved.