Share Pledges,Internal Corporate Governance And R&D Investment

Share pledges means using the stock held as a pledge to obtain financing.Since the authority allowed the brokers to carry out share pledges business in 2013,the scale of share pledges in China has sharply risen and rapidly developed,which significantly influenced not only enterprises behavior but also the capital market.However,as the major shareholders pledge the equity they hold,the risk of control rights transfer rises.And the gap between control rights and cash flow rights is enlarged.As a result,the possibility of opportunistic behavior increases.In a word,share pledges not only increases leverage risk by its nature,but also indirectly affects the long-term development of the company.Therefore,it is necessary to study more about the economic consequences caused by share pledges.In recent years,the authority has been emphasizing the significance of"innovation".The report of the 18th National Congress of the Communist Party of China clearly put forward the implementation of the strategy of innovation-driven development,emphasizing that "scientific and technological innovation is the strategic support for improving social productivity and of crucial importance in the overall development of the country".Enterprises are the main body of innovation.Mastering core technologies and strengthening independent innovation capabilities are essential for Chinese enterprises to achieve long-term development.Therefore,it is necessary for enterprises to maintain sufficient R&D investment.However,after the share pledges,in order to avoid the risk of losing control rights,major shareholders tend to conduct upward real earnings management and reduce R&D investment.On the other hand,because of the deepening of the separation of control rights and cash flow rights,shareholders may pay more attention to pursuing private benefit through the operation of capital instead of investing in the long-term innovation ability of the company.Based on information asymmetry theory,principal-agent theory and signal transmission theory,this paper discusses the theoretical process of the suppression of enterprise R&D caused by share pledges,and then conducts empirical test using the sample data collected from CSMAR&wind to prove the hypothesis.Further,this paper adds corporate governance factors into the model,studying the regulatory role of different governance mechanisms.which includes shareholding structure,board structure and executive incentives,on the agency problem between major and minor shareholders aggravated by share pledges.Theoretically,this paper supplements work in related aspects.In practice,it provides reference for the internal and external stakeholders when making decisions and also offers suggestions for enterprises to establish an effective corporate governance mechanismThis paper consists of 6 chapters.The first chapter introduces the background of share pledges and the significance of innovation.The main innovation points are also discussed in this chapter.The second chapter summarizes the foreign and domestic literature on the impact of share pledges,enterprise innovation and corporate governance and explains the interaction between one and another.The third chapter includes the definition of relevant concepts and the reasoning process of the hypothesis.The concepts of share pledges,internal corporate governance and enterprise innovation are clarified.Then hypothesis are proposed based on information asymmetry theory,principal-agent theory and signal transmission theory.The fourth chapter is the empirical test part,including data processing,variable definition and model design.Data of 2007-2017 A-share listed companies are selected and stata14.0 is used to process the data and conduct statistic analysis.The fifth part is the analysis of the regression results,showing the supporting statistical results of the empirical tests.The sixth chapter consists of the research conclusions and policy recommendations on the base of the empirical results.Limitations of the paper and future directions of relative studies are also discussed in this part.In conclusion,it is found that share pledges has a significant inhibitory effect on enterprise innovation,and in the case of more dispersed equity,the suppression effect is stronger.Executive share holdings can significantly weaken the inhibition.Small scale of the board can weaken the inhibition,which may not be so proving.However,independent directors and duality of CEO and board of directors show none significant impact.Apart from these,It is found that the regulating impact of dispersed shareholding and equity incentives are only significant when the largest shareholding is less than 50%.Both shareholding structure and executive stock incentive system have exerted a governance effect.But the governance mechanism of board of directors still needs to be further improved and strengthened.Besides,it is difficult to establish a perfectly-efficient governance mechanism by only regulating shareholding structure.Law and regulations are necessary to protect external shareholders' benefit.This paper provides a reference for the establishment of a robust and effective corporate governance mechanism.In practice,it is suggested that authorities should strengthen the regulation of share pledges business on the capital market.In addition,measures should be taken to restrain the negative impact and hidden risks brought by share pledges and promote self-innovation capability of Chinese enterprises.