Analysis On Influencing Factors And Economic Consequences Of The Different Types Of Related-party Guarantees

With the implementation of tighten monetary by central bank, and the deepening structural reforming of the banking system, the bank credit approval threshold has been increased. On the other hand, China’s bond market is still developing, external financing of listed companies are limited, and loan guarantee has been playing an important role in the capital market. Attributed to the factors such as the listing of enterprises and developing of enterprise groups, ownership concentration is the common status of the listed companies in the capital market. For a long time, the major shareholder taking advantage of dominance to achieve interest embezzlement through a variety of means has been a chronic illness of China’s capital market and the main problems of corporate governance. The related-party loan guarantee has been considered as one of the main ways.For a long time, guarantees on the related parties are one of the most important forms of external guarantees using by listed companies. Disclosed by the CSMAR data, in the annual reports of listed companies as of2011, the total amount of the related-party loan guarantees of A-share market is1239.27billion Yuan; increased224.78billion Yuan compared with the same period in2010and the increasing rate has been up to22.16%. From these data, we can find that the related-party guarantee is frequent, involved large-scale, and full of risk, for many companies provide guarantees more than their net assets, there are even cases providing guarantees to related-party when getting negative net assets. Although the relevant regulatory authorities has been strengthen supervision, but the problem of guarantee on related-party of listed companies still exists, even getting worse. Why the guarantees on related-party of listed companies especially the vicious ones cannot eliminate? What are the origins of the related-party guarantee? Is there any difference of motivation among the different types of guarantees? Do they have different effects? How to distinguish and evaluate with them? The essay attempts to explore these issues. After reviewing the results of previous studies and theoretical basis, the essay describes the status of related-party guarantee in China’s listed companies and analyzes the factors that may impact this behavior. Many previous studies investigated the origins of the guarantees, but most of them took the case analysis method to study and describe the risks and hazards, lacking empirical analysis, thus, the conclusion could be unconvincing because they are so one-sided and not representative. While most of empirical researches are basically studied the cases providing guarantees on related-party, rarely involving cases while related parties such as controlling shareholder of listed companies provided guarantees to the listed companies. Therefore, analyzing the behaviors of different types of related-party guarantees from an empirical point can get great theoretical and practical significance. In view of this, this essay investigated sub-sample study to the existing factors of different types of related-party guarantees and verified whether they have different effects, according with the three typical types of related-party guarantees based on the sample of A-share market from2009-2011.The essay confirmes that the level of risk, earning power, ownership structure and corporate governance factors have different effects on different types of related-party guarantees, and they also have different impacts on the value of the listed companies. So we should be treated them with distinguishment. Drawing conclusions from the study, Mixed guarantee behavior, like providing guarantee behavior, which is different from accepting guarantee, is more likely for achieving interest embezzlement, has the tunneling features. Related-party guarantee is a double-edged sword, can be used as a tool of the major shareholders to hollowed listed company, and as the same time can be a form as a support mechanism. Accepting the guarantee is the credit support from related parties, but providing guarantees behavior for exchanging credit with related parties, like only providing external guarantees to the relatd-parties, is likely the largest shareholder implementing tunneling behavior and will reduce the company’s valuee. Therefore, it is necessary to prevent the listed companies become the largest shareholder of "tunneling" tool, but also support the listed companies through the normal behavior of guarantee to get the funds necessary for enterprise development.Furthur,we should pay special attention to the private companies that having poor financial situation and low income level or poor growth but providing guarantees to related parties frequently,such companies should be the focus on the regulatory targets.