Tunneling Of Controlling Shareholder,Managerial Confidence And Equity Pledge Risk

From the end of 2012 to the third quarter of 2018,the equity pledge market value of Ashare market expanded from 699.9 billion to 6967.7 billion,increasing by 10 times in only 6 years,while the total market value of A-share market only increased by 1.82 times.In the wake of the change of pledgee from banks to brokers and institutional investors,trading places from the OTC to extrange-traded pledged repo,China Securities Regulatory Commission(CSRC),Shanghai and Shenzhen Stock Exchange(SSE and SZSE),China Securities Depository and Clearing Corporation Limited(CSDC)have implemented continuous renewal and institutional change towards to the policies.However,the problems of simplification,homogeneity,and hysteresis are still existed in equity pledge risk management,thus leading equity pledge risk get to the peak at the end of September 2018,resulting 15.4%of the listed company's share price fell below the major shareholder equity pledge closeout line and 22.6%of the listed company's share price fell below the major shareholder equity pledge warning line.Once the equity pledge of major shareholders is executed,it will have a huge impact on the continuation of the listed company,and the interests of minority shareholders will be damaged.Forced liquidation will also lead to capital market turbulence.To solve the "quake lake" of equity pledge,financial regulators such as the People's Bank of China,China securities Regulatory Commission,China Banking and Insurance Regulatory Commission and China Exchanges held a meeting from October 20th to 26th,2018,hoping to relieve the financing difficulties and equity pledge risks of private enterprises through multiple measures.After the meeting,the government of many cities set up various types of bail-out funds,then banks,securities companies,insurance companies and other financial institutions are also actively involved,and altogether they raised bail-out funds of 700 billion yuan,it took a toll on the government to relieve equity pledge crisis.Nevertheless,by the end of 2019 there is still 4.58 trillion yuan market value of equity pledge;the equity pledge risk management has a long way to go.Two important factors were selected in terms of affecting the risk of pledge of shares,the tunneling behavior of controlling shareholders and the managerial confidence.In addition to that,the dissertation further explores the influence of these two factors and the relationship between them on the risk of pledge of shares.The reason behind these two factors is based on the formation mechanism of equity pledge risk,the current situation of China's capital market and the existing theoretical research foundation.First of all,the risk of equity pledge arises from two aspects:the excessive size of the pledged equity and the decline of the market value of the pledged equity.The former is the fundamental cause of the risk of equity pledge,while the latter is the direct cause of the risk of equity pledge.Secondly,there has been "a dominant"phenomenon of the controlling shareholder of listed companies in China,not only the existence of the controlling shareholders of listed companies accounted,controlling shareholder's stake was also significantly higher than that of developed countries,when the investor protection legal system is weak,plus,the environment is lacking internal and external checks and balancing mechanism,tunneling by controlling shareholders of listed companies will be a kind of inevitable phenomenon.Thirdly,unlike many existing researches which suggested that the proportion of executives of listed companies in China is low,in the dissertation,the results have shown that usually in non-state-owned enterprise,executives are the controlling shareholder themselves.Although their direct shareholding ratio is not high,through the pyramid and crossshareholding structure,the controlling shareholders and executives are actually merged into one identity.Therefore,their level of confidence is not only affecting company's operation process,but also affects the decision of equity pledge.In the end,there is a certain relationship between managerial confidence and controlling shareholder's behavior.According to the existing theory,tunneling is based on the dynamic balance of a series of external conditions and internal factors,it is the result of matching the subject characteristics and objective situation,whereas managerial confidence has relative stability,the dissertation argues that the latter is more likely to affect the tunneling of controlling shareholder.The investigation of how the relationship between these two factors influence equity pledge risk has made a more deep and rich research..Based on the principal-agent theory,corporate governance theory,behavioral finance theory and asset pricing theory,the dissertation studies the equity pledge behavior of the controlling shareholders of non-financial listed companies that have not been ST from 2013 to 2017,and discusses the influence of the tunneling behavior of controlling shareholders and managerial confidence on the equity pledge risk.Firstly,the dissertation analyzes the influence of tunneling behavior of controlling shareholders on equity pledge risk,and further analyzes the adjustment effect of accounting information quality and collusion effect of the first two major shareholders on this relationship.Secondly,the dissertation analyzes the influence of managerial confidence on equity pledge risk under the dual identity of both controlling shareholders and executives,and further analyzes the effect of dominance of controlling shareholders on this relationship.Finally,the tunneling behavior of controlling shareholders and the managerial confidence are investigated under the same framework,which not only analyzes the common influence of them on the equity pledge risk,but also analyzes the relationship between them,so as to make the research of the dissertation more systematic and comprehensive.It is hoped that the study of the dissertation can provide relevant practical suggestions for policy makers,controlling shareholders and executives,pledgee and small investors to jointly manage and control equity pledge risk,and also make incremental contributions to relevant theoretical research.Firstly,the dissertation studies whether the tunneling of controlling shareholders can explain the equity pledge risk.After controlling the endogeneity as much as possible,this chapter finds that the tunneling by the controlling shareholder of the listed company significantly increases the possibility of being alerted and forced that the pledged equity in the subsequent period.The risk of stock pledge is decomposed into two parts:size and market value,and it is found that the tunneling of controlling shareholders affects the risk of stock pledge through the following two aspects:on the one hand,tunneling increases the size of stock pledge,because the proportion of stock pledge will increase after the tunneling of controlling shareholders;On the other hand,tunneling reduces the market value of pledged shares,because the controlling shareholder's tunneling of the listed company will increase the operating risk and damage the value of the company.Further analysis shows that improving the quality of accounting information disclosure can reduce the positive influence between the risk of tunneling and the equity pledge risk.However,the closer the shareholding ratio of the top two shareholders is,the greater the positive impact of tunneling by controlling shareholders on the equity pledge risk will be.Secondly,the dissertation studies whether the managerial confidence of dual-identity executives can explain the equity pledge risk.In non-state-owned enterprises,it is common for controlling shareholders to directly participate in the operation of listed companies as executives,but there are few studies on the impact of the combination of dual identity on the equity pledge risk.This chapter verifies the positive relationship between executives'confidence and equity pledge risk,as well as the "size and market value" mechanism that has such an impact.On the one hand,the higher the executives' confidence,the larger the equity pledge size,and the greater the equity pledge risk.On the other hand,the higher the executives'confidence,the greater the operational risk and stock price fluctuation of the company,the lower the market value of pledged shares,and the greater the risk of equity pledge.Further analysis shows that no matter what management role the controlling shareholder plays,the managerial confidence has a significant positive impact on the equity pledge risk.As the control dominace becomes stronger,the positive effect also increases.Having a dual identity also reinforces the positive effect.Finally,the dissertation studies the relationship between controlling shareholders'tunneling behavior and managerial confidence,and their influence on equity pledge risk.It is a common phenomenon in non-state-owned enterprises for controlling shareholders to take the positions of CEO and chairman,which enables us to study the influence of controlling shareholders' tunneling behavior and their confidence as executives on their equity pledge risk.In this chapter,it is found that the more the controlling shareholder tunneling the listed company in the early stage,the higher the possibility of its pledged equity being alerted and forced;The higher the confidence of the controlling shareholder as a executive,the higher the possibility that its pledged equity being alerted and forced;Moreover,the executives' confidence will affect the controlling shareholders tunneling of the listed company.Further analysis shows that tunneling is a mediating effect that executives' confidence affects equity pledge risk;Executive confidence is the granger cause of tunneling,and the other way around.The tunneling of controlling shareholders is the rational behavior of all stakeholders after the game,while the executives' confidence especially overconfidence is a relatively stable irrational cognitive deviation,which will affect rational judgment.Finally,the executives' overconfidence strengthens the positive relationship between the tunneling of controlling shareholders and the equity pledge risk.The academic contributions of the dissertation are mainly reflected in:(1)Research perspective selection.Different from previous studies which mainly focused on the influence of equity pledge of controlling shareholders on the listed companies,the dissertation discussed the factors influencing the risk of equity pledge of controlling shareholders from the perspective of preventing capital market risks,and studied the influence of tunneling of controlling shareholders on the risk of equity pledge.Unlike previous research that executives shareholding in our country is very few and the ownership and management is separate,the dissertation selected the controlling shareholders and executives view incorporated in the dual identity,discussed from the point of view of preventing the risks of capital market,the dissertation investigates the dual identity executive how confident influence the risk of equity pledge;The dissertation also investigates the relationship between rational factors and irrational factors from the perspective of rationality(tunneling by controlling shareholders)and irrationality(manager confidence),and studies the influence of these two factors on the risk of pledge of controlling shareholders.(2)Analysis on the impact mechanism of equity pledge risk.The direct reasons for the occurrence of the pledge risk of all controlling shareholders are as follows:first,the size of equity pledge is too high;second,the market value of equity pledge is falling.In the dissertation,equity pledge risk is decomposed into two parts:the size and the market value of pledged equity,and the influence mechanism of "size and market value" is constructed and verified,revealing the internal logic of the influence of tunneling behavior of controlling shareholders and executives' confidence on equity pledge risk.(3)Rich moderating effect tests.The dissertation makes a further analysis on the quality of information disclosure and the dominace effect of shareholders' behavior,and deepens the investigation on the influence of tunneling on the risk of equity pledge.The dissertation also differentiates four kinds of control according to the control modes of controlling shareholders over the listed companies,and finds that the control dominnace have a significant strengthening effect on the relationship between the degree of confidence and the risk of equity pledge,which deepens the investigation on the influence of the confidence of dual-identity executives on the risk of equity pledge.(4)Variable measurement.In the dissertation,the principal component analysis method is used to construct a continuous indicator of executives' confidence degree,and the risk index of stock pledge is calculated according to the management business guide of stock pledge process in practice,which improves the accuracy of executives' confidence degree and stock pledge risk measurement,and enhances the reliability of the research results.The research results of the dissertation provide important references for policy makers,regulators,controlling shareholders and executives of listed companies,small investors,pledgees and other stakeholders to prevent and control equity pledge risk:(1)Regulators should develop,improve and implement the corresponding policies,including improve the securities legal system,strength the securities investors legal protection,improve the internal governance mechanism and external counterbalances mechanism,combined with the actual situation to formulate reasonable measures for the management of large shareholders equity pledge to encourage the controlling shareholders to reduce tunneling behavior and managerial confidence deviation impact on the risk of equity pledge.(2)Controlling shareholders as well as executives of listed companies also needs to take corresponding measures to prevent the transfer of controlling rights caused by the equity pledge forced,the controlling shareholders must respect the rights and interests of minority shareholders and other stakeholders,reduce the equity pledge proportion and size of the equity pledge,improve the corporate governance mechanism,such as reducing the dual effects of dual identity.(3)Small shareholders and potential investors should be good at interpreting the information of major shareholders' equity pledge disclosed by the listed company,including fully interpreting the information related to the equity pledge of controlling shareholders,fully understanding the tunneling behavior of controlling shareholders,and reasonably analyzing the meaning of managerial confidence,so as to make correct investment decisions.(4)Pledgees should have appropriate risk management countermeasures for the pledges and the financing companies,and should have systematic and long-term measures in the approval and control process of the pledge business,the risk management process of the pledge period and the process of the disposal of the pledge default.