Controlling Shareholder's Stock Pledge And Stock Price Synchronicity

In recent years,it has become more and more common for major shareholders to raise funds through equity pledges.According to the statistics of the Cathay Pacific database,the company that controls the shareholding of the controlling shareholder in 2012-2017 accounted for 35.3% of all A-share listed companies(excluding the financial and insurance industry,the same below),and the other major shareholders accounted for equity pledge.To the overall 23.9%,this data fully proves that the external financing method of equity pledge is favored by major shareholders.This phenomenon has also received attention in the capital market,because in addition to financing convenience,equity pledge implies many risks.In 2015,the stock market suspension event in China's stock market directly led to the risk of a listed company facing a burst of positions.The explosion of the warehouse will not only harm the interests of the controlling shareholders,but also affect other stakeholders.Therefore,this paper believes that the controlling shareholder has the motive and ability to reduce the risk brought by the equity pledge.By combing the existing literature,the author finds a problem worth considering: after the equity pledge,the controlling shareholder reduces the risk.Will it affect the stock price synchronicity?Based on the incomplete contract theory,information asymmetry theory and noise interpretation theory,this paper studies the impact of controlling shareholders' equity pledge on stock price synchronicity based on the 2012-2017 A-share listed company.Drawing on previous studies,this paper uses dummy variables to measure explanatory variables,and removes the samples that were pledged in the same year and released in the same year.A total of 15,179 observations were obtained,and descriptive statistics,correlation analysis,VIF test,and multiple regression analysis were used.The three hypotheses presented in this paper were validated.The empirical results show that: first,the controlling shareholder's equity pledge is negatively correlated with the stock price synchronization;secondly,when other major shareholders have equity pledge,the controlling shareholder's equity pledge is more significantly related to the stock price synchronization;third,in the external audit When supervision is strengthened,the negative correlation between the controlling shareholder's equity pledge and stock price synchronization is weakened.It can be seen from the conclusions of this paper that after the controlling shareholder's equity pledge,the risk of transfer of control rights and the right to cash flow will be limited.In order to protect its own interests,the controlling shareholder has the motive and ability to manipulate the stock price of the listed company,which leads to the transmission of noise information.In the stock price,the stock price synchronization is reduced.As a developing country,China's capital market is still not perfect.The stock price contains more noise information,and the controlling shareholder's equity pledge will make this situation worse.Therefore,whether it is the regulatory authorities,investors,listed companies themselves or the pledgee,they should be cautious about the controlling shareholder's equity pledge.For the regulatory authorities,it is necessary to play a supervisory and punitive function,suppress the behavior of some controlling shareholders using the equity pledge to short the listed companies,and continuously improve the equity pledge system according to the status quo.For investors,they should pay attention to the potential risks of equity pledge and prudent investment.For listed companies,they should be prepared in advance for the possible negative impact of equity pledge.For the pledgee,the risk involved in the equity pledge should be fully considered when signing the pledge contract,and the “short-selling” motive of the controlling shareholder may be restrained through the pledge contract clause.