An Analysis Of Economic Consequences Of Equity Pledge Of Major Shareholders In Performance Commitment

Performance commitment is a special compensation clause in the current capital market.It is a special compensation clause put forward by listed companies or sellers in M&A transactions in order to reduce the risks brought by information asymmetry in issuing stocks,purchasing assets or M&A.As a common financing means in the capital market,equity pledge has been favored by major shareholders of listed companies in recent years due to its advantages of low cost and relatively simple procedures.Although the original intention of the establishment of performance commitment is to reduce the risk of information asymmetry and protect the rights and interests of minority shareholders,more and more studies show that if the performance commitment of listed companies is accompanied by the equity pledge behavior of major shareholders,it will often bring negative economic consequences such as stock price decline,corporate value damage and poor market performance.Therefore,this paper studies the equity pledge behavior of major shareholders under performance commitment,trying to explore the economic consequences of such behavior.The case enterprise studied in this paper,Zangge Mining,is an enterprise that entered the capital market through backdoor listing.On the occasion of its backdoor listing,a three-year performance commitment agreement was signed in 2016,and the major shareholders of the enterprise immediately launched equity pledge when the listing was successful.In order to meet the performance commitment target,Zangge Mining even resorted to financial fraud and other illegal means to improve the performance.After the exposure of the CSRC,the company’s stock price plummeted.However,with a series of compensation measures taken by the major shareholders of Zangge Mining,the business gradually went back to the right track.When the case analysis is carried out,this paper first conducts motivation analysis and studies the performance commitment period(2016-2018)and the performance commitment period(2019-2021)of Zangge Mining from three aspects: enterprise behavior,enterprise value and market response.The economic consequences of major shareholders’ equity pledge during the performance commitment period and after the performance commitment period of Zangge Mining are analyzed comprehensively.Through analysis,this paper believes that the pledge of major shareholders’ equity in the performance commitment of Zangge Mining has brought negative economic consequences such as the decline of corporate value,corporate financial fraud and poor market reaction,while after the performance commitment period,with the enterprise actively making up for its mistakes and repairing investor relations,it has brought positive economic consequences such as the recovery of corporate value and good market reaction.Finally,combining with the content of this case,this paper summarizes the above analysis and puts forward several suggestions after forming the research conclusion,which are as follows: enterprises set performance commitment targets reasonably;The major shareholders of the enterprise refuse illegal acts and have the courage to bear responsibilities;Regulatory departments to strengthen the intensity of supervision and punishment and intermediary agencies to play a role in strengthening supervision.