The Impact of Legal System Reform on the Economic Consequences of Guarantees

Abstract

Abstract:

The 18th CPC National Congress has made the rule of law as the core of the governance in China, and promoting the reform of the legal system and the construction of the rule of law is collectively referred to as its legal system reform. Based on the theory of LLSV^[1], this paper constructs the theoretical basis of the impact of legal system reform on the motivations, behaviors and economic consequences of companies providing guarantees. Using the data of providing guarantees from Chinese listed companies from 2007 to 2016 and the 18th CPC National Congress as time window, this paper empirically examines the effect of legal system reform on the economic consequences of guarantees. It is found that after the 18th CPC National Congress, the cumulative abnormal returns (CAR) due to guarantee events have significantly increased by 0.37%. Moreover, the value destruction effect of the listed companies' guarantees on their subsidiaries and of the non-state-owned listed companies' guarantees is significantly alleviated. The results indicate that the legal system reform can effectively relieve the value destruction of guarantees and inhibit encroachment behaviors with guarantees. It is believed that legal system reform is a valid approach to solve the problem of the efficiency of market economy distribution in China.

Key words: the 18th CPC National Congress, legal system reform, guarantee, economic consequences

Leng Aolin, Wang Mengdi, Zhang Junrui. The Impact of Legal System Reform on the Economic Consequences of Guarantees[J]. , 2019, 31(8): 26-34.

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