The Case Analysis Of CRTY Rights Pledge And Its Results

With the popularity of equity pledge financing,the share pledge has become a heated topic discussed in academia.For the purposes of investment,speculation and so on,major shareholders of listed companies do the equity pledge,which may exacerbate the agency problems of Listed Companies,causing the separation of control power and cash flow power.As a result,it may lead to major shareholders' interests tunneling' behavior and harm the interests of the other shareholders.In addition,the share pledge will affect the operating performance of companies.Equity pledge is generally considered inversely proportional to the company's operating performance.CRTY as the case study,which is based on past relevant equity pledge research and then determine the research content and direction.Through the analysis of the causes,characteristics and results of CRTY' equity pledge,the paper summarizes the problems which should be paid attention to by listed companies in equity pledge and makes reasonable recommendations.The theoretical basis involved in the article are the asymmetric information theory,the capital structure theory,the signal transmission theory and the control rights theory.The capital structure which the large shareholders' ownership are concentrated leads to the fact that the large shareholders have absolute control over the company.The large shareholders' behavior are lack of supervision,which may encroach the interests of minority shareholders and do harm to the company.Because of the asymmetric information,the major shareholders are in the information dominance during the process of the shareholding pledge by listed companies,while the minority shareholders and the creditors are in the information weak position.All of these have increased the company's agency problem and the agency cost.The shareholding pledge does not affect the majority shareholders' control of the listed company so the large shareholders still control the company's operation.The shareholding pledge of the major shareholders has the function of information transfer,which may deliver either the optimistic information of the large shareholder about the prospect of the company or the information about the company's cash flow problems.Whatever information the shareholding pledge delivers,the stock price of the company would fell and investors sell the stock holdings,which affect the company's normal operations.CRTY was listed in 2010 with the solar energy and the photo voltaic modules as its principal business.With the downturn of the PV industry market,CRTY becomes increasingly difficult to have a leading role in the market.In order to alleviate the financial crisis and expand the personal investment,the leader of the CRTY began borrowing substantial loans using shareholding pledge in 2011.But due to the irrational behavior of the large shareholder,the financial crisis has not been resolved.What is worse,its financial chain has been further deteriorated.This article analyzes the process of 21 times shareholding pledge and find out that the CRTY has the characteristics such as high-frequency and high-rate,which shows a severe shortage of funds.A series of shareholding pledge has provided adequate funding to expand.But at the end of 2012,when the company's capital chain gap furthered expand,the shareholding pledge could not become a means of corporate finance or play a role in the company.The shareholding pledge has exacerbated the company's proxy issues.The irrational behavior of the major shareholders' shareholding pledge has played a significant role in promoting CRTY developing to the current situation.After analyzing the shareholding pledge of CRTY in detail,the article describes a series of consequences resulting from its shareholding pledge and summarizes the content of the article.The irrational behavior of major shareholders' shareholding pledge sourced from the shortage of funds of the company.Cash flow problems results to the shareholding pledge.The loans originally obtained will further expand the funding gap,which will result in frequently shareholding pledge and further affect the demand for funds.Therefore,the article put forward that the precondition of the reasonable shareholding pledge is the appropriate industry condition and the company's prosper development prospects.This article has three enlightenments,the first one is that the role of equity pledge is conditional.Secondly,the shareholding pledge supervision of major shareholders should be strengthened.Thirdly,the listed company and its major shareholders should use reasonable means of financing.Although the shareholding pledge is an important means of financing of listed companies,it is not unique.Each means of financing has its own advantages and disadvantages so the listed companies should choose the most appropriate way.The shareholding pledge,especially the large shareholders' shareholding pledge,has relatively high risk of listed companies,which will cause negative impact on the listed companies.CRTY is a typical negative case.