Does the Achilles heel of guarantee networks drive financial distress?
Yuan George Shan,
Yirui Wang,
Wuqing Wu and
Weihao Zhen
International Review of Financial Analysis, 2023, vol. 87, issue C
Abstract:
To explore characteristics of guarantee networks that drive financial distress, we use a dataset comprising 20,467 firm-year observations from Chinese companies listed on the Shanghai and the Shenzhen Stock Exchanges to construct networks from 85,229 guarantee relationships. We show that guarantee networks have a negative effect on company financial distress, revealed by cash holdings and long-term liabilities. Larger networks, those with an Achilles heel, and companies with high closeness centrality exacerbate this effect, and companies in a stronger financial position suffer greater negative impacts. Guarantee networks may also exert their negative impact by acting as a channel for shareholder tunneling.
Keywords: Achilles heel; Debt repayment; Financial distress; Guarantee network; Shareholder tunneling (search for similar items in EconPapers)
JEL-codes: C88 G32 M41 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:87:y:2023:i:c:s1057521923001515
DOI: 10.1016/j.irfa.2023.102635
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