Abstract: The guarantee circle becomes one problem to negatively affect corporate performance and regional economic development and it makes some theoretical and practical senses to investigating how it forms. This paper utilizes the guarantee data from listed firms to form the guarantee circle data and investigate the reason for the formation of guarantee circle. Results show that when the promotion incentive is larger or the financial marketization level is higher, firms are more prone to join in the guarantee circle. Furthermore, when expropriation risk of block shareholders is higher, the above-mentioned effect is larger. Promotion incentives mainly affect the state-owned firms while financial marketization level mainly affect the non-state-owned firms. This paper uncovers the mechanism for formation of guarantee circle, and has some implications for enhancing credit resources allocation efficiency through deepening reform and improving corporate governance.