An Empirical Study Of Related-party Loan Guarantee’s Tunneling Of Chinese Listed Companies

In recent years, more and more cases are disclosed among Chinese listed companies thatthe controlling shareholders transfer the companies’ benefits by related-party loan guarantee,which lead more and more investors to concern about the trust crisis of the listed companies.Due to highly concentrated ownership structure, these companies usually have controlling sh-areholders, whose shares are basically nontradable. This kind of company agency problemsmainly exists among the controlling shareholder, the medium and small shareholders and cre-ditors. It is different from the agency conflict between managers and shareholders when thecompanies have large amount of shareholders.Many empirical researches manifest the related-party loan guarantee’s tunneling effect ina company taken by controlling shareholders will reduce the value of company. Corporate go-vernance is the root of the related-party loan guarantee’s tunneling effect. Given the controlli-ng shareholders occupy the benefits of the medium and small shareholders, they may generat-e fake trade, result in unfair transfer pricing and disclose untrue financial report. These willmake the internal control system inefficient and even lead to internal domination contest. I re-search on the related-party loan guarantee’s tunneling effect to help public investors to knowthe true development of companies, to improve the ability of analyzing the disclosed informa-tion of companies and to enhance their investment enthusiasm; help companies to improve thestandards and rationality of the related-party loan guarantee’s treatment, to protect the benefitsof medium and small shareholders and to improve the internal control and supervision; help e-xternal supervision organizations to gain empirical data, to judge the potential companies withtunneling effect, to refine the system of information disclosure and supervision steps of the re-lated-party loan guarantee.In this paper, I choose A-shares companies with the related-party loan guarantee as theresearch objects. By theoretical analysis and empirical test, I will explore the features and fa-ctors of the related-party loan guarantee in Chinese listed companies. First of all, I use the g-uarantee causes theory and benefit of control theory to analyze how the related-party loan gu-arantee tunneling effect occurs and to raise the research hypothesis. Then I select the variablesand build several models. At last, I analyze the existence, economic motivation and realizatio-n methods of the related-party loan guarantee’s tunneling effect through empirical data.This article found, either the companies, who provide guarantee to their controlling shar-eholders and affiliates, or the companies, who only provide guarantee to subsidiaries, have tu-nneling effect. The tunneling effect can lead decline of value of the listed companies. The co- ntrolling shareholders set related-party loan guarantee tunneling with the purposes of forminginterest groups and obtaining maximized private benefits. Therefore, they will confidentiallybuild tunnels to transfer benefits with credit transactions and fund occupancy.