Equity Pledge Of Controlling Shareholders And Market Value Management

Since the implementation of the split share structure reform in 2005,China's capital market has officially entered the era of full circulation.Under this background,the concepts of equity pledge and market value management have gradually become familiar to the public.According to Wind data,there were approximately 8711 equity pledge events in China's A-share market in 2018,and the amount involved in equity pledges amounted to 1.42 trillion yuan.This shows that equity pledge has become one of the important ways to refinance the capital market.Different from the traditional method of financing through equity transfer,equity pledge is essentially a mortgage guarantee loan that the pledgee mortgages the equity held to the pledgee.This financing method allows the pledger to Obtaining the required funds under the control of the enterprise,and equity pledge financing also has the advantages of lower financing costs,simple approval processes,and strong liquidity.Therefore,it has become a very popular financing method for shareholders of listed companies.Everything has two sides.Equity pledge,while possessing the above advantages,hides risks for both financing parties.When the stock price drops,for the pledge party,the value of the pledged property in hand will decrease as the stock price drops,so the risk that the person cannot recover the loan in full.For the pledger,when the stock price fluctuates sharply below the warning line or touches the liquidation line,the pledger will be required to increase the pledge or replenish the funds.If the pledger cannot complete the margin replenishment operation in time,the pledgee In order to ensure that their own rights and interests are not lost,forcible liquidation will be implemented,so that the convenience of pledge will face the risk of losing control of the listed company.In addition,when the pledgee publicly disposes of the pledged equity in the secondary market,it will cause the stock price to fall further,which will enter the vicious circle of falling stock prices-closed positions-the stock price continues to fall,and eventually trigger secondary market investment.The collective panic of the researchers even affected the entire capital market.Market value management is a new concept that emerged after the reform of the split share structure in China.It refers to the comprehensive use of a variety of scientific and compliant value management methods and capital operation methods based on the company's market value signals to achieve maximum value creation and value for the company.Achieve optimal strategic management behavior.Market value management emphasizes that enterprises must realize their market value on the basis of increasing intrinsic value.However,when shareholders,especially controlling shareholders,pledged equity,in order to ensure the stability of the value of the pledged property,there was a strong incentive to use capital operations to cause the listed company's market value to be unrealistically high.The high stock price without intrinsic value cannot be maintained for a long time.Once the equity is released,the stock price of the listed company is likely to fall sharply,thereby harming the interests of small and medium investors and even causing turbulence in the securities market.Then,when the company's controlling shareholder pledges equity,will the market value of the company increase? This is a basic problem to be studied in this article.Therefore,this article takes China's Shanghai and Shenzhen A-share listed companies as the research object and conducts an empirical investigation based on the sample data from 2006 to 2017.It was found that compared to companies that did not have controlling shareholder equity pledges,listed companies that had controlling shareholder equity pledges had higher excess returns.In other words,when the controlling shareholder has pledged equity,it is indeed more likely to conduct market value management.In addition,what effect will corporate governance effects have on this conclusion? This paper selects three variables: short-selling mechanism,institutional shareholding,and board size.It further studies how the influence of the controlling shareholder's equity pledge on market value management will change under these three variables.The empirical results found that the existence of a short-selling mechanism,the higher the institutional shareholding ratio,and the larger the size of the board of directors will make it more difficult for listed companies to conduct market value management after the controlling shareholder's equity pledge.In addition,after the controlling shareholder has pledged equity,in what way will it realize market value management? Ways to achieve market value management include equity incentives,high transfers,mergers and acquisitions,restructuring,earnings management,and information disclosure manipulation.Compared to other market value management methods,the operation of high transfers is extremely simple.It is only a simple adjustment of the numbers between accounting subjects and the risk of violation is low.Therefore,high transfers are widely used by enterprises as a method of market value management with almost no cost.Therefore,this paper selects high transfer as the intermediary variable of equity pledge and market value management,and studies the relationship between equity pledge,high transfer and market value management.Through empirical results,it is found that after the pledge of the controlling shareholder's equity,the company will indeed use the method of high transfer to conduct market value management.The innovation of this article is to deeply explore the impact of equity pledge on market value management from the perspective of corporate governance,and introduce the intermediary variable of high transfer,to explore the mechanism of controlling shareholder equity pledge,high transfer and market value management.It has theoretically enriched the literature on the economic consequences of equity pledge,the motivation of market value management,the role of corporate governance,and the relationship between equity pledge,high transfers,and market value management.In practice,it can make investors,listed companies,and regulators have a better understanding of the relationship between equity pledge and market value management,which has certain reference significance for investors' investment decisions,the governance structure of listed companies,and the policy formulation of regulators.