| In recent years,with the development of China’s capital market,share pledge has become an important source of financing channels for shareholders.Although share pledge is the behavior of shareholders,the security of share pledge is closely related to the stock price,especially for controlling shareholder,which will involve the issue of corporate control.Therefore,how to hold back the control right is an important issue for controlling shareholders when they pledge shares to borrow money.Under the framework of principal-agent,the controlling shareholder has incentive effect and entrenchment effect.The incentive effect holds that with the increasing of share ratio,controlling shareholder has strong motivation to supervise the managers,and can avoid the insider control phenomenon under the situation of dispersed ownership,then enhance the firm’s value.Entrenchment effect considers that,with the improvement of controlling shareholder’s proportion,controlling shareholder can control the company gradually,and make the first agency problem(shareholders and managers)into second agency problem(controlling shareholder and minority shareholders),the controlling shareholder can entrench the minority shareholders by tunneling and damage the firm’s value with the lack of the supervision.There is more literature which has studied the two effects,but the hypothesis of these studies are more based on that controlling shareholder doesn’t lose control right.The difference among these results should be attributed to the difference of index or selection of sample.Therefore,what kind of role can they play when controlling shareholder are faced with the threat of control right?The share pledge of controlling shareholders provides an opportunity to study the above problem.During the period of share pledge,the stock price fluctuates random,if the stock drops below the mandatory liquidation,the controlling shareholder is need to provide additional collateral or terminate the pledged shares early,or the pledged shares are forced to sell and the controlling shareholder can lost the control right.Therefore,the controlling shareholder has motive to influence the information disclosure decision of the listed firm so as to avoid the risk of the stock price crash.If controlling shareholder has incentive effect,controlling shareholder will actively supervise the managers/insiders during the period of share pledge,then the firm can release bad news timely and avoid the private benefits of managers.So,the controlling shareholder plays a positive supervision role under the incentive effect.If controlling shareholder has entrenchment effect,controlling shareholder has motive to withhold bad news,and maintain control right by reducing the quality of information disclosure and increasing information opacity.Therefore,the controlling shareholder will tunnel the listed firm under entrenchment effect.Which role does the controlling shareholder play? Supervision or conspiracy?Based on the scenario of share pledge,combined with the institutional background and regulatory features of China,this study examines the effect of share pledg on firm’s disclosure,furthermore,and explores the economic consequences of the information disclosure strategy and checks the mechanism of corporate governance on them.This study has important theory and practical significance for disclosure regulation,supervision innovation.First of all,this paper examines the information disclosure strategy of the listed firm during the share pledge of controlling shareholder.We find that the pledge firms will withhold bad news and disclose more good news during the share pledge of controlling shareholders.This finding shows that in order to avoid the crash risk of stock price and keep back the control right,the controlling shareholder has incentive to do opportunistic behavior and influence the voluntary disclosure motivation.Short selling and institutional investors,as external supervisors,can significantly reduce the motivation of the company to withhold bad news.It shows that the effective external governance mechanism can restrain the egoism of controlling shareholders / companies.Further test shows that,compared with SOEs /political connection enterprises,non-SOEs /non political connection enterprises are more likely to withhold bad news during the share pledge of controlling shareholders.Moreover,the good news will be released more timing than bad news.The forecast accuracy(bias)of bad news will be lower(bigger)and the earnings forecast will be more optimistic(underestimate the loss).There is the same finding when we use the mandatory disclosure sample.Secondly,based on the disclosure quality data of the Shenzhen Stock Exchange,the paper tests the pledge firms’ disclosure quality from the perspective of regulator.We find that the company’s information disclosure quality is worse during the period of share pledge of controlling shareholder,which is more significant in the sample of the company’s hidden bad news.This finding shows that the opportunist behavior of controlling shareholder who withholds bad news results in worse quality of information disclosure.Further study finds that short selling and institutional investor can significantly alleviate the quality of information disclosure of pledged firms,especially for those who disclose bad news.Moreover,compared with SOEs and political connection enterprises,the disclosure quality is wores in non-SOEs /non political connection enterprises during the period of share pledge of controlling shareholder,but this effect mainly exists in the sample who withholds the bad news.Thirdly,the paper tests the pledge firms’ disclosure violation based on the violation data.We find that the probability of disclosure violation of the pledged company is higher,which is more significant in the sample of the company’s hidden bad news.This finding shows that the opportunist behavior of controlling shareholder who withholds bad news results in a higher probability of information disclosure violation.Further study finds that short selling and institutional investor can significantly alleviate the information disclosure violation of pledged firms,especially for those who disclose bad news.Meanwhile,whether the pledged company is engaged in information disclosure violation or not depends on the external institutional environment.The perfect external institutional environment can restrain the opportunist motivation of the controlling shareholder and help to reduce the probability of information disclosure violation.Moreover,compared with SOEs and political connection enterprises,the disclosure violation is higer in non-SOEs /non political connection enterprises during the period of share pledge of controlling shareholder,but this effect mainly exists in the sample who withholds the bad news.Finally,the paper examines whether the information disclosure strategy of the pledged company can reduce the stock price crash risk from the perspective of investors.We find that the stock price crash risk of the listed firm is lower during the share pledge of controlling shareholder,which is more significant in the sample of the firms who discloses bad news.This finding suggests that controlling shareholder who withholds bad news and discloses good news can not reduce the stock price crash risk.Further study finds that short selling and institutional investors can significantly alleviate the stock price crash risk,especially for those who disclose bad news.Moreover,compared with SOEs and political connection enterprises,the stock price crash risk is higer in non-SOEs /non political connection enterprises during the period of share pledge of controlling shareholder,but this effect mainly exists in the sample who discloses the good news.This paper finds that the controlling shareholder who withholds the bad news temporarily during the period of share pledge,but the company’s information disclosure quality is worse and are more likely to be punished by regulaor.Moreover,this disclosure strategy can not reduce the stock price crash risk.This finding shows that the opportunistic information disclosure strategy of the controlling shareholder is a high cost behavior.The innovations of this paper are as follows.Firstly,this paper uncovers the black box of the study of the behavior of controlling shareholders from the perspective of share pledge.It has been found that the controlling shareholder has an egoistic behavior,which will affect the company’s earnings management,dividend policy,market timing and so on.But the hypothesis of these studies is that the controlling shareholder’s equity is static and stable,and they will not lose the control right.It’s difficult to effectively observe the motivation of the controlling shareholder because of lack of the incentive.Share pledge makes controlling shareholder faced the risk of control right,making them motivated to engage in selfish behavior or supervision motivation,which provides us with opportunities to observe the behavior of controlling shareholder.In this paper,we use the natural experiment provided by share pledge of controlling shareholder and reveal the black box of shareholder behavior,and provide a new perspective for understanding the behavior of controlling shareholder.Secondly,this paper will help to deepen the understanding of the impact of share pledge on firms’ behavior.As a kind of financing behavior of controlling shareholder,although there is no direct relationship with the listed firm,but because of the special status of the controlling shareholder in listed firm,cotrolling shareholder will lost the control right.Therefore,the controlling shareholder has the motive to avoid the stock price crash risk during the share pledge.This paper focuses on information disclosure,which directly affects the company’s share price behavior,and explores the impact of share pledge on information disclosure.It helps to understand the effect of share pledge on firm’s behavior.Thirdly,based on the research path of "influence → economic consequences → governance mechanism",this paper helps to understand the transmission mechanism of share pledge and enrich research question.This paper,the share pledge as a starting point,explores the effect of share pledge on information disclosure decision.Furthermore,the paper explores the economic consequences of this disclosure strategy,and analyses the corporate governance mechanism.Through the path of "influence → economic consequences → governance mechanism",the finding helps to enhance understanding of the conduction mechanism of share pledge,and enriches the research problem.Fourthly,the conclusion of this paper has great value for regulator and investor.Based on the background of financing,this paper finds that controlling shareholder tends to withhold and postpone bad news during share pledge and engages in opportunistic behavior.The conclusion can help investors identify the opportunist motives of pledged companies,also the finding has important significance for investors’ investment decisions,and has important practical guiding significance for regulators to regulate disclosure of pledged companies. |
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