Controlling Shareholder's Stock Pledge And Over-Investment

Stock pledge as a new financing method is sought after by shareholders.Stock pledge is used to transfer the static assets held by shareholders to available dynamic funds,accompanied by the risk of falling value of the pledged assets.As the controller of a company,the controlling shareholder can influence the company's business activities through its own actions or decisions.The behavior of controlling shareholders' equity pledges may have an impact on the company's daily business activities.In order to reduce the risk of liquidation caused by a possible stock price drop after the controlling shareholder commits an equity pledge,maintaining the stability of the stock price and the control right,they will affect the daily activities of the company through their own rights.Studying the equity pledge of the controlling shareholder can uncover the veil of equity pledge,and the research object is limited to the equity pledge of the controlling shareholder because the controlling shareholder can influence the mode of daily production and operation of the enterprise through their own behavior and decision,thus the controlling shareholders' equity pledge behavior will be transmitted to the daily activities of the enterprise through its impact on the decision-making,the production and operation of the enterprise will undergo some changes.Studying the link between equity pledge of controlling shareholders and over-investment of enterprises is due to the fact that investment activities are crucial to the survival and development of the company,and over-investment,as a result of corporate investment activities,is damage to the company rather than an increase in value.In the long-term,it will undermine the value of the enterprise and even make the company face difficulties in capital and development.However,the expansion of investment scale can stimulate the rise of the stock price in the short term.When the company releases the news of the equity pledge,it causes the market to change negatively.Investors were given a shot in the arm to ensure that the share price did not jump significantly,as a result,the control right of the controlling shareholder was safe.The difference between this study and previous studies is that previous studies focused on the motivations,economic consequences,and market reactions of equity pledges by controlling shareholders,the impact on the company's daily activities is seldom involved,even if it involves the micro-level activities of the company,most of these studies are the choice of corporate accounting policies and dividend policies.They do not involve corporate investment activities.This article will examine the impact of controlling shareholder equity pledge on investment activities and expand the literature on the economic consequences of equity pledge by controlling shareholders.The previous research on corporate investment activities was mainly from the perspective of internal and external corporate governance environment,personal characteristics of senior executives,and the compensation of executives.Although the controlling shareholder is the main decision-maker for the company,researches about the influences of controlling shareholders' behavior on the investment is relatively rare,the role of the company leader seems to be ignored.This article will make this supplement.The existing literature on the relationship of controlling shareholder equity pledges and over-investment starts from the external and internal governance environment.The external governance environment is the degree of fierce competition in the product market where the company is located,while the internal governance environment clarifies several major shareholders hold shares do great to firms,which in turn eases the positive relationship between the controlling shareholder equity pledge and the over-investment.This article is mainly based on the nature of the company's property rights to make the relation between controlling shareholders equity pledge and overinvestment clear,including whether the company is a state-owned enterprise,and whether the is a fund holding or qualified foreign investor holding enterprise.Enterprises with different property rights making the investment decisions are studied in the context of equity pledges by controlling shareholders.At the same time,in the robustness test,this article uses the PSM,instrumental variable estimation methods and change sample interval et.al.to examine the endogenous issues that may be involved in the article.This article selects companies listed on the main board of the Shanghai and Shenzhen Stock Exchanges from 2007 to 2016(for the measurement of investment level requires the previous period's data,using the range of financial data is from 2006 to 2016).The relationship between equity pledges of controlling shareholders and corporate investment activities is studied,and the differences of property rights(including state-owned and non-state-holding)and institutional investors holding shares(including fund and qualified foreign investor)are compared.The conclusion is that equity pledge of the controlling shareholder has a significant positive relation with over-investment,in other words,equity pledge of the controlling shareholder can aggravate the degree of over-investment.This positive relation changes under different property rights:for non-state-owned holding companies the positive correlation is more pronounced than that of state-controlled enterprises;for fundholding and non-qualified-foreign-investor-holding companies,the relationship is more pronounced.