Research On The Effect Of Controlling Shareholders Pledge On Real Earnings Management Of Listed Firms

Share pledge is one of the most important financing methods for controlling shareholders in China.Compared with other financing methods,share pledge has the advantages of low financing cost,convenient procedures,and no influence on the controlling position due to the particularity of its subject matter.Therefore,the controlling shareholder is more inclined to ease the financial pressure by pledge the equity.Since the launch of the stock pledged repo transactions business by brokers in 2013,the business has developed rapidly in just a few years,and the trading volume has shown a spurt of development.However,it is worth noting that although the share pledge has largely solved the financing needs of listed companies,it inherently implies huge risks.For the controlling shareholder of the equity pledge,in order to avoid the transfer of control rights caused by the closing of the pledged shares,the controlling shareholder has a strong incentive to enhance the company's stock price through real earnings management.In recent years,the influence of equity pledge on corporate earnings management behavior has gradually attracted the attention of scholars.However,the existing literature pays less attention to the earnings management behavior after the controlling shareholder pledge is also affected by different internal and external governance mechanisms.Since the behavior of the company's management needs to meet the relevant requirements of internal and external governance mechanisms,this indicates that the real earnings management behavior caused by equity pledge is likely to be affected by different internal and external governance mechanisms such as the nature of equity,shareholding ratio of controlling shareholders,equity checks and balances,marketization process and legalization level.In view of this,based on Chinese unique institutional background,this paper puts the internal and external governance mechanisms,equity pledge and real earnings management into a uniform analysis framework for research.It has very important theoretical and practical significance.Firstly,this paper defines the related concepts of equity pledge,real earnings management and internal and external governance mechanism.Based on the principal-agent theory,private benefits of control theory and asymmetric information theory,this paper puts forward the research hypothesis.Then this paper adopts the method of quantitative research,selects the data of Chinese A-share listed companies from 2010 to 2017,establishes a multiple linear regression model,and empirically tests the relationship between the controlling shareholder's equity pledge and real earnings management.At the same time,combined with China's special national conditions,we further examined how the above relationship will change under the influence of different internal and external governance mechanisms.In addition,the method of replacing explanatory variables and interpreted variables is used to test the robustness of the empirical research results to ensure the reliability of the research conclusions.Finally,this paper puts forward relevant policy recommendations based on the conclusions of the research,pointing out the research limitations and future research directions of this paper.The research in this paper finds that there is a positive correlation between the controlling shareholder's share pledge and the real earnings management.Furthermore,from the perspective of internal governance mechanism,it is found that the positive correlation between the controlling shareholder's equity pledge and real earnings management will be further strengthened with the increase of the controlling shareholder's shareholding ratio,and the balance of equity and the nature of state-owned shares can significantly alleviate the real earnings management behavior caused by the controlling shareholder pledge.In addition,in the external governance environment,it is found that the legal level and marketization process have a significant constraint on the real earnings management problem induced by the controlling shareholder's equity pledge financing.Based on the above research results,this paper puts forward relevant countermeasures and suggestions from the aspects of improving the mechanism of equity pledge information disclosure,strengthening the construction of equity pledge laws and regulations,improving the internal governance of the company,and strengthening the analysis and monitoring of equity pledge by the pledgee,in order to further standardize the controlling shareholder's equity pledge behavior,weaken management's the real earnings management tendency,and promote the healthy development of the capital market.