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Expropriation through loan guarantees to related parties: Evidence from China

Journal of banking & finance, 2009, Vol.33 (1), p.141-156 [Peer Reviewed Journal]

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Title:
Expropriation through loan guarantees to related parties: Evidence from China
Author: Cole, Rebel Allen ; Fu, Lawrence J ; Berkman, Henk
Subjects: G32 G34 G38 Block holder China Corporate governance Expropriation Tobin's Q Tunneling
Is Part Of: Journal of banking & finance, 2009, Vol.33 (1), p.141-156
Description: We identify and analyze a sample of publicly traded Chinese firms that issued loan guarantees to their related parties (usually the controlling block holders), thereby expropriating wealth from minority shareholders. Our results show that the issuance of related guarantees is less likely at smaller firms, at more profitable firms and at firms with higher growth prospects. We also find that the identity and ownership of block holders affect the likelihood of expropriation. In addition, we use this sample to provide new evidence on the relation between tunneling and proxies for firm value and financial performance. We find that Tobin's Q, ROA and dividend yield are significantly lower, and that leverage is significantly higher, at firms that issued related guarantees.
Publisher: Elsevier
Language: English
Identifier: ISSN: 0378-4266
EISSN: 1872-6372
DOI: 10.1016/j.jbankfin.2007.11.001
Source: RePEc

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