IDEAS home Printed from https://ideas.repec.org/a/eee/pacfin/v62y2020ics0927538x20301116.html
   My bibliography  Save this article

Related guarantee and implicit tunneling

Author

Listed:
  • Zhang, Xiaoqian
  • Lv, Shixian
  • Lin, Wenlian

Abstract

This paper shows related guarantees increase corporate tunneling. The effect is more pronounce for firms with smaller size, higher liabilities, and poorer profitability. Implicit tunneling has a significant effect on the mechanism of tunneling and bank financing. However, individual tunneling shows a smaller and shorter term effect. Furthermore, economic development, time variant economic freedom, regional economic development, business-government relationship and government intervention are all significant variables that can explain variations in the magnitude of tunneling. Our results are robust in that we provide two Instrumental Variables that can further predict frauds of “unrelated” loans, implicit related transactions and textual analysis on corporate loan announcements.

Suggested Citation

  • Zhang, Xiaoqian & Lv, Shixian & Lin, Wenlian, 2020. "Related guarantee and implicit tunneling," Pacific-Basin Finance Journal, Elsevier, vol. 62(C).
    • Handle: RePEc:eee:pacfin:v:62:y:2020:i:c:s0927538x20301116
    DOI: 10.1016/j.pacfin.2020.101359
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0927538X20301116
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.pacfin.2020.101359?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Xiaping Cao & Michael Lemmon & Xiaofei Pan & Meijun Qian & Gary Tian, 2019. "Political Promotion, CEO Incentives, and the Relationship Between Pay and Performance," Management Science, INFORMS, vol. 65(7), pages 2947-2965, July.
    2. Sudipto Dasgupta & Erica X N Li & Dong Yan, 2019. "Inventory Behavior and Financial Constraints: Theory and Evidence," Review of Financial Studies, Society for Financial Studies, vol. 32(3), pages 1188-1233.
    3. Allen, Franklin & Qian, Jun & Qian, Meijun, 2005. "Law, finance, and economic growth in China," Journal of Financial Economics, Elsevier, vol. 77(1), pages 57-116, July.
    4. Shi, Jinchuan & Zhang, Xiaoqian, 2018. "How to explain corporate investment heterogeneity in China's new normal: Structural models with state-owned property rights," China Economic Review, Elsevier, vol. 50(C), pages 1-16.
    5. Zhang, Xiaoqian & Yu, Mingqiang & Chen, Gaoquan, 2020. "Does mixed-ownership reform improve SOEs' innovation? Evidence from state ownership," China Economic Review, Elsevier, vol. 61(C).
    6. Ronald W. Masulis & Peter Kien Pham & Jason Zein, 2011. "Family Business Groups around the World: Financing Advantages, Control Motivations, and Organizational Choices," Review of Financial Studies, Society for Financial Studies, vol. 24(11), pages 3556-3600.
    7. Ying Dou & Ronald W Masulis & Jason Zein, 2019. "Shareholder Wealth Consequences of Insider Pledging of Company Stock as Collateral for Personal Loans," Review of Financial Studies, Society for Financial Studies, vol. 32(12), pages 4810-4854.
    8. Ying Hao & Jing Lu, 2018. "The Impact of Government Intervention on Corporate Investment Allocations and Efficiency: Evidence from China," Financial Management, Financial Management Association International, vol. 47(2), pages 383-419, June.
    9. Qian, Meijun & Yeung, Bernard Y., 2015. "Bank financing and corporate governance," Journal of Corporate Finance, Elsevier, vol. 32(C), pages 258-270.
    10. Jordan Siegel & Prithwiraj Choudhury, 2012. "A Reexamination of Tunneling and Business Groups: New Data and New Methods," Review of Financial Studies, Society for Financial Studies, vol. 25(6), pages 1763-1798.
    11. Calomiris, Charles W. & Larrain, Mauricio & Liberti, José & Sturgess, Jason, 2017. "How collateral laws shape lending and sectoral activity," Journal of Financial Economics, Elsevier, vol. 123(1), pages 163-188.
    12. Jiang, Guohua & Lee, Charles M.C. & Yue, Heng, 2010. "Tunneling through intercorporate loans: The China experience," Journal of Financial Economics, Elsevier, vol. 98(1), pages 1-20, October.
    13. Almeida, Heitor & Park, Sang Yong & Subrahmanyam, Marti G. & Wolfenzon, Daniel, 2011. "The structure and formation of business groups: Evidence from Korean chaebols," Journal of Financial Economics, Elsevier, vol. 99(2), pages 447-475, February.
    14. Cao, Xiaping & Pan, Xiaofei & Qian, Meijun & Tian, Gary Gang, 2017. "Political capital and CEO entrenchment: Evidence from CEO turnover in Chinese non-SOEs," Journal of Corporate Finance, Elsevier, vol. 42(C), pages 1-14.
    15. Buchuk, David & Larrain, Borja & Muñoz, Francisco & Urzúa I., Francisco, 2014. "The internal capital markets of business groups: Evidence from intra-group loans," Journal of Financial Economics, Elsevier, vol. 112(2), pages 190-212.
    16. Borja Larrain & Giorgo Sertsios & Francisco Urzúa I, 2019. "The Effects of Losing a Business Group Affiliation," Review of Financial Studies, Society for Financial Studies, vol. 32(8), pages 3036-3074.
    17. Gao, Huasheng & Zhang, Jin, 2019. "SOX Section 404 and Corporate Innovation," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 54(2), pages 759-787, April.
    18. Marianne Bertrand & Paras Mehta & Sendhil Mullainathan, 2002. "Ferreting out Tunneling: An Application to Indian Business Groups," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 117(1), pages 121-148.
    19. Lily H. Fang & Josh Lerner & Chaopeng Wu, 2017. "Intellectual Property Rights Protection, Ownership, and Innovation: Evidence from China," Review of Financial Studies, Society for Financial Studies, vol. 30(7), pages 2446-2477.
    20. Elisa Luciano & Giovanna Nicodano, 2014. "Guarantees, Leverage, and Taxes," Review of Financial Studies, Society for Financial Studies, vol. 27(9), pages 2736-2772.
    21. Lin, Chen & Ma, Yue & Malatesta, Paul & Xuan, Yuhai, 2011. "Ownership structure and the cost of corporate borrowing," Journal of Financial Economics, Elsevier, vol. 100(1), pages 1-23, April.
    22. Harjoat S. Bhamra & Lars-Alexander Kuehn & Ilya A. Strebulaev, 2010. "The Aggregate Dynamics of Capital Structure and Macroeconomic Risk," Review of Financial Studies, Society for Financial Studies, vol. 23(12), pages 4187-4241, December.
    23. Wei Jiang & Hualin Wan & Shan Zhao, 2016. "Reputation Concerns of Independent Directors: Evidence from Individual Director Voting," Review of Financial Studies, Society for Financial Studies, vol. 29(3), pages 655-696.
    24. Peng, Winnie Qian & Wei, K.C. John & Yang, Zhishu, 2011. "Tunneling or propping: Evidence from connected transactions in China," Journal of Corporate Finance, Elsevier, vol. 17(2), pages 306-325, April.
    25. Heitor Almeida & Chang‐Soo Kim & Hwanki Brian Kim, 2015. "Internal Capital Markets in Business Groups: Evidence from the Asian Financial Crisis," Journal of Finance, American Finance Association, vol. 70(6), pages 2539-2586, December.
    26. Black, Bernard S. & Kim, Woochan & Jang, Hasung & Park, Kyung-Suh, 2015. "How corporate governance affect firm value? Evidence on a self-dealing channel from a natural experiment in Korea," Journal of Banking & Finance, Elsevier, vol. 51(C), pages 131-150.
    27. Tim Loughran & Bill Mcdonald, 2011. "When Is a Liability Not a Liability? Textual Analysis, Dictionaries, and 10‐Ks," Journal of Finance, American Finance Association, vol. 66(1), pages 35-65, February.
    28. Zhang, Xiaoqian & Wang, Zhiwei, 2020. "Marketization vs. market chase: Insights from implicit government guarantees," International Review of Economics & Finance, Elsevier, vol. 69(C), pages 435-455.
    29. Lin, Chen & Ma, Yue & Malatesta, Paul & Xuan, Yuhai, 2013. "Corporate ownership structure and the choice between bank debt and public debt," Journal of Financial Economics, Elsevier, vol. 109(2), pages 517-534.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Li, Tao & Ji, Yu, 2021. "Institutional ownership and insider trading profitability: Evidence from an emerging market," Pacific-Basin Finance Journal, Elsevier, vol. 70(C).
    2. Wu, Kai & Jin, Zejun & Xu, Maobin, 2022. "Thirst for money: External guarantees and stock price crash risk," Pacific-Basin Finance Journal, Elsevier, vol. 72(C).
    3. Shan, Yuan George & Wang, Yirui & Wu, Wuqing & Zhen, Weihao, 2023. "Does the Achilles heel of guarantee networks drive financial distress?," International Review of Financial Analysis, Elsevier, vol. 87(C).
    4. Zhang, Xiaoqian & Huang, Bin, 2022. "Does bank competition inhibit the formation of zombie firms?," International Review of Economics & Finance, Elsevier, vol. 80(C), pages 1045-1060.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Cheng, Liubing & Chen, Yanyan & Zhang, Yan, 2022. "Business groups and corporate bond costs: Evidence from China," Pacific-Basin Finance Journal, Elsevier, vol. 75(C).
    2. Viswanathan Nagarajan & Pitabas Mohanty & Apalak Khatua, 2023. "Financing effects of corporate diversification: A review," Review of Managerial Science, Springer, vol. 17(7), pages 2555-2585, October.
    3. Liu, Yunxiao & Kim, Woochan & Sung, Taeyoon, 2021. "Investment efficiency of firms outside the business group," Journal of Corporate Finance, Elsevier, vol. 71(C).
    4. Fuxiu Jiang & Kenneth A Kim, 2020. "Corporate Governance in China: A Survey [The role of boards of directors in corporate governance: a conceptual framework and survey]," Review of Finance, European Finance Association, vol. 24(4), pages 733-772.
    5. Aldunate, Felipe & González, Felipe & Prem, Mounu & Urzúa, Francisco, 2020. "Privatization and business groups: Evidence from the Chicago Boys in Chile," Explorations in Economic History, Elsevier, vol. 78(C).
    6. Ronald W. Masulis & Peter K. Pham & Jason Zein, 2020. "Family Business Group Expansion Through IPOs: The Role of Internal Capital Markets in Financing Growth While Preserving Control," Management Science, INFORMS, vol. 66(11), pages 5191-5215, November.
    7. Allen, Franklin & Qian, Jun & Qian, Meijun, 2018. "A Review of China’s Institutions," CEPR Discussion Papers 13269, C.E.P.R. Discussion Papers.
    8. Ljungqvist, Alexander & Chen, Donghua & Lu, Haitian & Jiang, Dequan & Zhou, Mingming, 2015. "State Capitalism vs. Private Enterprise," CEPR Discussion Papers 10423, C.E.P.R. Discussion Papers.
    9. Joseph P. H. Fan & Li Jin & Guojian Zheng, 2016. "Revisiting the Bright and Dark Sides of Capital Flows in Business Groups," Journal of Business Ethics, Springer, vol. 134(4), pages 509-528, April.
    10. Byun, Hae-Young & Choi, Sunhwa & Hwang, Lee-Seok & Kim, Robert G., 2013. "Business group affiliation, ownership structure, and the cost of debt," Journal of Corporate Finance, Elsevier, vol. 23(C), pages 311-331.
    11. Buchuk, David & Larrain, Borja & Muñoz, Francisco & Urzúa I., Francisco, 2014. "The internal capital markets of business groups: Evidence from intra-group loans," Journal of Financial Economics, Elsevier, vol. 112(2), pages 190-212.
    12. Shi, Yang & Li, Jiachen & Liu, Ruiming, 2023. "Financing constraints and share pledges: Evidence from the share pledge reform in China," Journal of Corporate Finance, Elsevier, vol. 78(C).
    13. Cheung, Yan-Leung & Rau, P. Raghavendra & Stouraitis, Aris & Tan, Weiqiang, 2021. "Does the market understand the ex ante risk of expropriation by controlling shareholders?," Journal of Corporate Finance, Elsevier, vol. 68(C).
    14. Maria Boutchkova & Diego Cueto & Angelica Gonzalez, 2022. "Test power properties of within-firm estimators of ownership and board-related explanatory variables with low time variation," Review of Quantitative Finance and Accounting, Springer, vol. 59(3), pages 1215-1269, October.
    15. Richard W. Carney & Travers Barclay Child, 2015. "Business Networks and Crisis Performance: Professional, Political, and Family Ties," Tinbergen Institute Discussion Papers 15-135/V, Tinbergen Institute, revised 20 Feb 2015.
    16. He, Qing & Lu, Liping & Ongena, Steven, 2015. "Who gains from credit granted between firms? Evidence from inter-corporate loan announcements made in China," BOFIT Discussion Papers 1/2015, Bank of Finland Institute for Emerging Economies (BOFIT).
    17. Chandera, Yane & Utama, Cynthia Afriani & Husodo, Zaäfri Ananto & Setia-Atmaja, Lukas, 2018. "The co-insurance effect hypothesis and the cost of bank loans: Evidence from Indonesian pyramidal business groups," Global Finance Journal, Elsevier, vol. 37(C), pages 100-122.
    18. Carney, Michael & Estrin, Saul & Van Essen, Marc & Shapiro, Daniel, 2017. "Business groups reconsidered: beyond paragons and parasites," LSE Research Online Documents on Economics 87340, London School of Economics and Political Science, LSE Library.
    19. Wei Zhang & Xiong Xiong & Guanying Wang & Jing Li, 2022. "The accounting and trading information channels of excess control rights on IPO long-term return in China," Review of Quantitative Finance and Accounting, Springer, vol. 59(4), pages 1609-1646, November.
    20. Nan Jia & Jing Shi & Yongxiang Wang, 2013. "Coinsurance Within Business Groups: Evidence from Related Party Transactions in an Emerging Market," Management Science, INFORMS, vol. 59(10), pages 2295-2313, October.

    More about this item

    Keywords

    Business groups; Guarantee; Tunneling; Related transactions; Textual analysis;
    All these keywords.

    JEL classification:

    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:pacfin:v:62:y:2020:i:c:s0927538x20301116. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/pacfin .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.