Institutional Environment,Large Shareholder Expropriating Cash From Listed Company，and Corporate Financial Risk

Large shareholder borrowing money from company has become the most seriousproblem of public companies. A survey of public companies shows that largeshareholder borrowing money from company, with market shocks, bad management andillegal guarantee, is one biggest risk that companies confronted. It is said that seventypercent of bad performed companies are lending money to their controlling shareholder.And one of the most important course of company bankrupcy is controlling shareholderborrowing money.This paper works on data from public companies in2008and2011trying to findout the relationship of controlling shareholder borrowing money and the financial riskof the company. Also, we consider the impact of difference between SOEs andnon-SOEs. And we take into account the impact of institutional environment oncompany’s fiancial risk.The main finding of this paper is: first, the financial risk increases whencontrolling shareholder borrow more money from the company; second, when the finalcontroller is the government, the relationship of controlling shareholder borrowingmoney and the financial risk of the company is weaker; third, better institutionalenvironment will also weak the relationship of controlling shareholder borrowingmoney and the financial risk of the company. This paper enlarge the research on largeshareholder borrowing money from public company and give suggestion to thegovernment on information disclosure, regulation of pubilc company’s money and legalprotection of investors.