The Mechanism of Risk Transfer by Loan Guarantees ——An Empirical Study of Chinese Bond Market

Abstract

Abstract:

By 30^th December 2011, the total amount of loan guarantees provided by the listed companies in Chinese stock market has passed 700 billion yuan. During the period from 2007 to 2011, more than half of the listed companies issued loan guarantees. Many studies have discussed the impact from guarantee on guarantors' value. However, the risk transfer from the guarantees to the guarantor has not been studied. In this paper, we choose data from China's listed companies which issued bonds, and analyze the impact from loan guarantees on companies' bonds credit spreads. The empirical results show that if the risk of loan guarantees is fully managed, providing loan guarantees will not affect guarantors' default risk. However, when the firm is controlled by the government, providing guarantees will increase guarantors' default risk.

Key words: loan guarantee, guarantor, default risk, credit spread

Leng Aolin, Zhang Junrui, Xing Guangyuan. The Mechanism of Risk Transfer by Loan Guarantees ——An Empirical Study of Chinese Bond Market[J]. , 2015, 27(7): 3-14.

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