Financial constrain is one of the main obstacle the firms faced to when promoting innovation. Even though related party transitions earn lots of controversies, getting guarantee from related parties is a main way for firms to get external financial resources. Therefore, we exam whether get loan guarantees from related parties can promote the behavior of innovation. Using the 2007-2016 data of Chinese listed firm, we find that higher the guarantee coverage cannot promote firms' R&D expenditure in the very year and the following year. The results indicates that the reason that loan guarantee can promote the behavior of innovation is because it can ease the financial constrain the debtor faced to, rather than the risk sharing mechanism.
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