Abstract: After the implementation of No.120 announcement issued by China Securities Regulatory Commission and China Banking Regulatory Commission, according to our survey, from 2007 to 2014, over 40% of the list firms provide loan guarantees to a third party; and the average leverage and return on asset (ROA) of those firms which provide loan guarantees to third party is 54.07% and 3.07% separately. Compared with that, the average leverage and return on asset (ROA) of firms without the provision of loan guarantees is 43% and 4.5% separately. The large difference in financial characteristics between firms with and without loan guarantee indicates that the financial characteristics may affect the provision of loan guarantees. To interpret this phenomenon, a theoretical model is built based on the rational pricing policy: (1) a guarantee contract must has positive net cash flow, and (2) a guarantee contract must not change the ration of equity and debt. And then using the sample from Chinese stock exchange from year 2007 to 2014, it is found that (1) at beginning, the provision of loan guarantee positively related to the leverage of guarantor and the performance of guarantor. But these relation turn to the opposite side after a threshold value. (2) The threshold values of leverage and performance are different between state-owned companies and non-state-owned companies. At the threshold values, non-state-owned companies showed lower leverage and better performance. These results indicate that because of the implicate guarantee of government, even with the same financial characteristic, state-owned companies have better credit score than non-stated-owned companies.

Key words: loan guarantee behavior, pricing policy, ownership