Related Guarantee and Implicit Tunneling

42 Pages Posted: 30 Mar 2021

See all articles by Xiaoqian Zhang

Xiaoqian Zhang

Zhejiang University - College of Economics

Date Written: November 3, 19


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.

Keywords: Business Groups; Guarantees; Tunneling; Related Transactions; Textual Analysis

JEL Classification: G34; O11

Suggested Citation

Zhang, Xiaoqian, Related Guarantee and Implicit Tunneling (November 3, 19). Pacific-Basin Finance Journal, Vol. 62, Available at SSRN: or

Xiaoqian Zhang (Contact Author)

Zhejiang University - College of Economics ( email )

Yuquan Campus 38 Zheda Road
Hangzhou, Zhejiang 310027

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