Governance Structure and Related Party Loan Guarantees: The Case of Chinese Family Business Groups
31 Pages Posted: 20 Dec 2014 Last revised: 9 Jan 2015
Date Written: January 8, 2005
Loan guarantees to related parties by affiliated subsidiaries within family controlled pyramids form a means by which the controlling family expropriates value from minority shareholders. The controlling family, however, will attempt to escape blame for the behavior. Using a sample of 1785 listed Chinese firms affiliated with family-controlled business groups, we explore how family governance structure affect the use of related party loan guarantees. As hypothesized, we find that affiliates with non-family chairmen, but with family directors or senior executives, issue larger volumes of loan guarantees to related parties, whereas affiliates with family chairmen and those with non-family interlocking chairmen do not. The behavior is moderated by regional institutional development.
Keywords: Family business groups, China, Vertical interlocks, Expropriation, Loan guarantees
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