The Tunneling Behavior In The Equity Pledge Of Controlling Shareholders

Equity pledge has gradually become the most important refinancing method for listed companies in China with the advantages of financing threshold,convenient procedures and easy pricing..Pledge of equity is a normal phenomenon for enterprises to seek financing under the background of tighter liquidity.However,due to the institutional loopholes,equity pledge has become a tool for controlling shareholders to manipulate listed companies for benefits expropriation.This very common problem has aroused widespread concern in academia.Therefore,studying on the benefits expropriation mechanisms of controlling shareholder's equity pledge will has great practical significance for investors to understand this mechanism,correct investment misunderstandings,and provide academic basis for the regulatory agencies to improve supervision and regulation.The thesis illustrates the basic theory of equity pledge and the benefits expropriation.It examines the equity pledge behavior of Yinyi Shares Corp.Ltd.Since the launch of the equity pledge behavior,analyzes the ways,extent of expropriation and short-term market effect and financial effect,and then summarizes research conclusions,policy implications and puts forward subsequent topics of this thesis.The main ideas of this thesis are as follows:1.Equity pledge aggravates the separation of the two rights and intensifies the agency problem,which facilitates the controlling shareholders' encroachment on the interests of listed companies.As of September 22,2018,Yinyi Shares has been pledged for 79 times,including 21 times of repeated pledges,and the pledge rate of 82.18 percent is the highest in Shanghai and Shenzhen.Controlling shareholders take advantage of the low cost to obtain the benefits of control,which is accompanied by or gives rise to a variety of embezzlement of interests2.The controlling shareholder can encroach on the interests of the listed company through the equity pledge.There are four main ways of benefits expropriation: a.malicious occupation of capital,the company's financial expenses and non-operational funds occupied increase dramatically;b.associated guarantee,or even guarantee for enterprises with poor management or loss;c.related party transactions with concealment or violation;d.large proportion of cash dividend,suspected of manipulating cash flow to cash out and transfer interests.3.The behavior that controlling shareholders embezzle the interests of the company through the equity pledge weaken the financial performance.In terms of Yinyi Shares,this is mainly reflected in the deterioration of financial indicators.Among them,the lowest return on invested assets is only 2.2%.The turnover of fixed assets and accounts receivable continued to decline,and was far below the industry average.Total assets grew at a minimum of-6.7%.Tested the cumulative excess return rate in different window periods through the event research method,and it was found that the equity pledge behavior did not have a significant impact on the company's stock price in the short term.4.The improvement of the regulation can control the benefits expropriation which comes from the pledge behavior of the controlling shareholders.In view of the pledge behavior of the controlling shareholders of listed companies,the regulatory authorities should stipulate a more strict information disclosure system to plug the loopholes of supervision.Listed companies should focus on improving the corporate governance structure.This thesis aims to analyze the internal relationship between the pledge of stock right of controlling shareholders and the benefits expropriation,so as to enhance the specific understanding of investors and regulators in this respect.However,the pledge of equity and benefits expropriation involve a wide range of activities,and the company's stock price and performance are also restricted by a variety of factors.Therefore,the thesis is inevitably limited vision,analysis is still to be in-depth deficiencies.The follow-up study will make continuous efforts to expand the horizon and deepen the cognition.