Associated Guarantees, The Tunnel Effect And The Value Of The Company

Based on the sample of 765 listed companies in China stock market from 1998 to 2004, this paper investigates the relationship between connected-party guarantees and firm value. Meanwhile, it tests the sub-sample with 225 companies in 2004 by Logistic model for the impact of ownership structure, residual cash flow and credit index of the province where the listed company was born on the probability of abnormal connected-party guarantees. Finally, sorted by the receiptor of guarantees, the sample can be retained again with 390 companies to be tested for the different effect among different guarantee types. We find that, connected-party guarantee degree is negatively correlated with firm value. The higher the degree, the stronger the expropriation effect, which gives evidence that connected-party guarantee is one of controlling shareholders'expropriation behaviors. The results also confirm that leverage and residual cash flow rate positively affect the probability of abnormal connected-party guarantees, but the ultimate ownership and credit distribution index are opposite. Lastly, different types have different influence on firm value. Compared with other types, guarantees for controlling shareholders have a more significant tunneling effect on listed companies.