| China's financial system is still dominated by indirect financing,and increasing the proportion of direct financing has been advocated and strengthened presently.In the current economic environment,the development of direct financing,especially equity financing,is an important measure to build a multi-level capital market.As a direct financing method,equity pledge can revitalize existing assets and broaden financing channels,which is of great significance to the construction of a multi-level capital market.Since the reform and opening up,the financial industry has provided important support for the development of the real economy.With economic development,the degree of reform and opening up of the financial industry has gradually increased.Deepen the structural reform of the financial supply side,balance the relationship between stable growth and risk prevention,deepen financial reform and opening up,strengthen the ability to serve the real economy,prevent and resolve systemic risks,and promote stable and healthy financial industry and high-quality economic development.Continuously optimizing the financial structure,as reflected in the financing structure,is to change the imbalance between direct financing and indirect financing.In this context,this article focuses on the equity pledge financing behavior of the controlling shareholder,evaluates the actual effect of the specific operation of the equity pledge business,mainly involving the financing constraints of listed companies,the stable development of the stock market,and the safe operation of equity pledge banks,and explore effective ways to prevent and control equity pledge risks.The fundamental task of financial stability work is to prevent and resolve systemic financial risks.In recent years,financial risks have been mentioned many times.General Secretary Xi proposed in the report of the 19 th National Congress of the Communist Party of China that we must resolutely fight the battle to prevent and resolve major risks in October 2017.The 2018 government work report put forward three major battles operation map,which clearly stated that we must promote the prevention and resolution of major risks.The 2019 government work report once again proposes to effectively prevent,control and defuse hidden risks,and strive to prevent and defuse major risks.We will continue to fight to prevent and resolve major financial risks,and firmly hold the bottom line of preventing systemic financial risks in 2020.The successful experience of China's public risk prevention and control of sudden epidemics has fully demonstrated that the high correlation between local sniping and the overall campaign,and the control of local risks is an important part of preventing systemic financial risks.Equity pledge financing has gone through more than ten years of development and has a considerable business scale.In the new stage where corporate financing needs continue to increase and the limitations of indirect financing become prominent,equity pledges are favored by the controlling shareholders of the A-share market due to its uniqueness,and the scale of equity pledges has increased year by year.In the first half of 2015,as leveraged funds such as on-market funds and over-the-counter allocations flowed into the stock market in large quantities,the stock price continued to rise,and the equity pledge business was in full swing.And as the govenment began to rectify OTC funds,a large amount of OTC funds withdrew from the market,market financing liquidity became tighter,and many financing transaction positions were sold.With the massive outflow of funds,stock prices began to fall rapidly and sharply.The decline in stock prices caused many companies to explode their positions.The stock prices of many companies fell below the liquidation line and caused violent turbulence in the stock market.The occurrence of fueled the flames.When equity pledge shareholders are unable to repay their debts,it will also affect the actual control of the company.The "explosion" of equity pledge also affects other businesses of listed companies,affecting the normal operation of their trust and asset management companies.Once the potential risks of equity pledges are concentrated in the stock market,burst out in batches,and quickly spread to financial institutions such as pledge banks,it may cause systemic financial risks.Based on the analysis of the above events,this article studies the actual economic consequences of equity pledges,and explores the enhanced impact of controlling shareholders' equity pledges on stock price fluctuations and the possibility of financial risks resulting from them,in order to better regulate the equity pledge business at the institutional and operational levels,prevent and resolve equity pledge risks,promote the healthy development of the capital market,and promote the smooth operation of commercial banks.Accordingly,this article will conduct research from the following parts.Firstly,define the concepts and comb the related literatures.Secondly,in the theoretical analysis part,the development context of the equity pledge business rules,liquidity and its measurement methods,and information asymmetry theory are sorted out in detail to lay a theoretical foundation for the empirical part.Thirdly,analyze the equity pledge and financing constraints of listed companies,and test the correlation between equity pledge and stock price fluctuations.Finally,analyze the impact of equity pledges on bank risks when banks act as pledgers.Through literature review,theoretical analysis and empirical research,this article finds that there is a close relationship between equity pledge,stock price changes,commercial bank risks.The empirical analysis conclusions of this article are as follows:1.When the controlling shareholder has an equity pledge,the company's financing constraints are more serious.The reason is that the proportion of controlling shareholders to invest funds obtained from equity pledges into shareholders themselves,other third parties and listed companies are 70.8%,2.16%,and 27.04%,respectively.Only 27.04% of the funds are invested in listed companies for the production and operation of the real economy,which violates the relevant regulations and original intentions of the equity pledge business.2.Equity pledge will significantly increase the risk of stock price collapse,and equity pledge will also negatively affect the liquidity of listed companies' stocks.The mechanism of action is that equity pledge not only leads to asset mispricing,but also induces opportunistic behavior of controlling shareholders.Insufficient stock liquidity will significantly increase the negative impact of equity pledge on stock price collapse.The intermediary effect model proves that equity pledge reduces stock liquidity and increases the risk of company stock price collapse.3.The overall regression results of equity pledges and bank systemic risks show that equity pledges increase the systemic risks of banks.The larger the scale of pledged loans,the greater the systemic risk of the banking industry are.The analysis of the heterogeneity of bank liquidity risk shows that the higher the bank's liquid asset ratio,the lower the liquidity risk and the lower bank's systemic risk.When the bank has a high loan-to-deposit ratio,the bank's equity pledge business as a pledgee will further reduce its deposit funds,which will increase the liquidity risk faced by the bank.At this time,the equity pledge will increase the possibility of systemic risks.The policy recommendations in this article are:1.Regulate the behavior of controlling shareholders and protect the interests of small and medium investors.Small and medium investors are on the weak side of information,and their risk tolerance is relatively weak.The current market mechanism and equity pledge operation neglect the protection of small and medium investors.The relevant provisions on investor protection in the Securities Law should be revised and improved as soon as possible.Through the strict performance of the supervisory authority,the high degree of self-discipline of listed companies,the due diligence of institutions,the self-reliance of investors,the timely intervention of judicial organs,and the active supervision of media and public opinion,a joint force has been formed in various aspects to truly form a market atmosphere conducive to protecting the legitimate rights and interests of investors.2.Solve the financing constraints of listed companies by a package of financing innovation.Actively encourage and support relevant market entities to set up separate bailout funds,or organize new joint funds to enter the capital market,and help companies that are caught in equity pledge difficulties to resolve business problems.Actively give play to the role of inclusive finance,and provide loans to the greatest extent possible for companies that encounter operational difficulties temporarily but have markets for products and technologies and promising projects.Increase financing support for small,medium and micro enterprises,and improve the level and quality of financial services for enterprises.3.Increase effective information disclosure to promote the stable development of the stock market.When the controlling shareholder pledges shares,investors will correspondingly reduce their attention and participation in the company.If the listed company is a high-quality company,the situation will be very different.Investors' confidence in the listed company comes from the company's quality and development.Therefore,the governance level of listed companies and the quality of the company must be well controlled.Therefore,it is necessary to improve the governance level and company quality of listed companies,increase effective information disclosure,and promote the stable development of the stock market.4.Strengthen liquidity management to ensure the steady operation of commercial banks.A bank is a financial institution that operates and manages risks.The biggest pledge risk for a bank is the failure to recover the principal on time and the expected return.The prerequisite for banks to manage risks is to identify risks accurately and in a timely manner,so as to resolve risks before they occur,thereby minimizing losses.Banks should carefully select the qualifications of the company,review the company's operating capabilities and capital repayment capabilities,and analyze the shareholder structure set by the company in order to effectively prevent and control risks.5.Prevent and resolve financial risks.Firstly,improve the dual-pillar regulatory framework of monetary policy and macro-prudential policies,and strengthen the central bank's role in financial supervision.Secondly,improve the institutional settings of the Financial Committee and allocate more professionals to better prevent risks and maintain the stability of financial development.Thirdly,strengthen the supervision of systemically important financial institutions.Finally,strengthen equity pledge risk management and liquidity management to prevent systemic financial risks caused by equity pledge risks.The main contributions of this article are as follows:Firstly,this article studies the relationship between equity pledges and financing constraints,and finds that equity pledges can alleviate the financing constraints of controlling shareholders,but they cannot alleviate the financing constraints of listed companies.On this basis,the reasons for this phenomenon are innovatively studied.This article has enriched the research in this field.Secondly,this article studies the relationship between equity pledge and stock liquidity,and confirms that equity pledge has a negative impact on stock liquidity through asset mispricing and controlling shareholders' opportunistic behavior,which provides new evidence for the impact of equity pledge on stock liquidity. 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