Managerial Power,Internal Control And External Guarantees Of Listed Firms

The phenomenon of external guarantees of listed firms is common in Chinese security market.According to the data of listed firms in Shanghai and Shenzhen stock market from 2012 to 2016,the listed firms with external guarantees accounted for about 74%of the total companies.External guarantees have a negative impact on the company performance and corporate value.Some controlling shareholders tunnel companies through external guarantees and occupy the interests of minority shareholders.The recent violations of ST Xintong to provide guarantees for major shareholders and the investigations on Longli Biology's breach of guarantees by CSRC have made the external guarantees of listed companies an issue.As one of the most important elements of corporate governance,managerial power has been researched by more and more scholars in recent years.One of the typical characteristics of modern companies is that ownership is separated from management.Shareholders own the ownership of the enterprise.But they don't participate in the operation of the enterprise.The managerial power is transferred to managers.Managers control the enterprise and make decisions on the business activities.That results in the principal-agent relationship.Existing papers pay more attention to the economic consequences of external guarantees,the relationship between ownership structure and external guarantees.These papers don't include managers in the principal-agent chain,which blurs the mechanism of managerial power on the external guarantees of listed companies.The research shifts the perspective from shareholders to managers,trying to explore the overall effect of managerial power on the external guarantees of listed companies.The significance and innovation of this paper is that it enriches the literature on the external guarantees of listed companies and explores the mechanism of the listed company's external guarantees.The existing papers on external guarantees mainly focus on the reasons and the economic consequences of external guarantees.Even the papers about the relationship between external guarantees and corporate governance mostly focus on the board of directors and shareholders.There is little paper on the mechanism of listed companies' external guarantees.According to the theory of corporate governance,shareholders transfer the managerial power to the manager while retaining the residual claim.The agency problem has a direct impact on the company's daily external guarantees behavior.This paper will change the research view from the board of directors and shareholders to the manager,which will help to understand the mechanism of the company's external guarantees decision and provide theoretical basis and empirical evidence for the subsequent research on the external guarantees of listed companies.In addition,the papers on the external guarantees of listed companies are mainly from 2003 to 2010.These papers rarely talk about the internal control due to time.We believe that it is necessary to research the external guarantees of listed companies in view of the managerial power and the internal control,with the development of Chinese financial market,the mandatory disclosure of internal control and the improvement of the internal control system construction.Based on the data of 5 years(2012-2016)of listed companies in Shanghai and Shenzhen stock markets,this paper examines the impact of managerial power and internal control on the external guarantees of listed companies and the moderator role of internal control.The research results show that the managerial power is significantly positively correlated with the level of external guarantees of listed companies;internal control is significantly negatively correlated with the level of external guarantees of listed companies;internal control has a significant effect on external guarantees caused by managerial power.In addition,in view of the ownership as an important factor affecting the role of managerial power and internal control on the external guarantee of listed companies,this paper farther researches the role of managerial power and internal control in different ownership.The results show that the influence of the managerial power and the internal control on the external guarantees of listed companies is more significant in the state-owned enterprises.The conclusions of this paper reveal the mechanism of the managerial power and the internal control to the external guarantees of listed company.It provides evidence for the listed companies to improve the corporate governance structure and the behavior of external guarantees.In addition,it will establish a foundation for the government to improve the legal on the internal control.Furthermore,it will also help to reform the state-owned enterprise and guide the behavior of external guarantees by government.