Governance Structure and Related Party Loan Guarantees: The Case of Chinese Family Business Groups

Xin Chen, Jakob Arnoldi and Chaohong Na

Management and Organization Review, 2015, vol. 11, issue 4, 599-619

Abstract: 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 affects 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.

Date: 2015
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