Financial Restatements And Pledge Of Stock By Controlling Shareholders

Under the condition that the downwards pressure on the macro-economy increases and the lack of liquidity in the market is becoming increasingly severe, the high cost of and great difficulty in financing activities appear to be the main problems faced by a wide range of enterprises. When loaning from financial institutions, borrowers are usually required to provide collateral. In recent years, the pledge of stock by controlling shareholders has become a commonly used way of security in financing activities.In order to promote the price of stock, large shareholders usually manipulate the annual reports of listed companies by virtue of their controlling position. Both providing false information and deliberate omission of material information will lead to the restatement of financial reports published in prior years.By use of date from listed companies which has restated its annual report between the year of 2002 and 2004, the year of 2008 and 2012, I examined the relationship between financial restatement and the pledge of stock by controlling shareholders. It turns out that the possibility of financial restatement changes positively with the possibility of pledge of stock by controlling shareholders. But such relationship didn’t exist before the reform of non-tradable shares.In a word, by examining the relationship between financial restatement and the pledge of stock by controlling shareholders, I testify the economic motivation of financial restatement from a new perspective. My research provides a useful reference for the future research in related fields and has great theoretical and practical significance in regulating market order and protecting the rights of stakeholders.