The Pledge Of Controlling Shareholder's Equity?Benefits Expropriation And The Economic Consequences

In recent years,equity pledge has become popular in the China's capital market.As of September 12,2019,the number of Pledged Shares in the A-share market is about 605,136 million,about 9.1% of the total share capital.The market value of Pledged Shares is 4,751.13 billion yuan.The number of Pledged Shares of major shareholders is 604.19 billion,and the number of Pledged Shares of major shareholders accounts for 7.38% of the shares held.Compared with the traditional debt financing and equity financing,equity pledge has become the preferred capital transportation tool.With the expansion of demand,equity pledge has gradually developed into an important business of financial institutions such as banks or securities companies.The large shareholders of listed companies with capital demand and financial institutions eager to expand their business are in a fit,which makes the high proportion of equity pledge become the general normal for the rapid growth in China's capital market.With the growth of the market value of equity pledge,equity pledge injects capital and vitality into the capital market,and the risks behind it are more concerned.The high proportion of stock pledge makes the company more sensitive to the fluctuation of stock price.Once the stock price falls to the warning line and the closing line,and the controlling shareholder fails to redeem or supplement the pledge in time,it may lead to the compulsory closing of the pledged equity by the pledge,and even cause the controlling shareholder to lose control when the proportion is large.On the other hand,the segregation between control right and cash flow right caused by high proportion of equity pledge may also become an invisible "bomb",which not only aggravates the agency problem,but also encourages the controlling shareholders to seek control right private interest through beneifts expropriation,thus damaging the value of the company.Equity pledge leads to the risk of control transfer and the risk of beneifts expropriation,which has been paid more and more attention by academic circles and regulatory departments.This paper takes ST Zhongnan company as the case study object,and makes an in-depth analysis of its controlling shareholder's equity pledge activities and beneifts expropriation events,and studies the beneifts expropriation and its economic consequences caused by equity pledge.Based on the theory of private interest of control right,information asymmetry and principal-agent theory,this paper constructs the theoretical framework of equity pledge,beneifts expropriation and economical consequences,and studies the equity pledge behavior of controlling shareholders in ST Zhongnan company by case analysis.ST Zhongnan,a traditional cross-border manufacturing to film and television entertainment listed company,its controlling shareholders' equity pledge has a long duration,with a certain degree of typicality.First of all,this paper analyzes the motivation of the equity pledge of the controlling shareholders in ST Zhongnan company,and divides it into two stages: "neutral equity pledge" and "malicious equity pledge".It is found that the latter has the problems such as insufficient information disclosure,the behavior of benefits expropriation,the value of the pledged shares is likely to fall below the financing amount.During the period of "malicious equity pledge",the short-term equity pledge causes obvious accumulated excess loss to the enterprise.On this basis,this paper further analyzes the impact mechanism of equity pledge and beneifts expropriation,and holds that there is likely to be interaction between them.Through the calculation of financial indicators,Z-score,EVA,and Tobin Q,this paper estimate the impact of different motive stock pledge on the company.The study found that the equity pledge of ST Zhongnan company's controlling shareholders gives positive incentives to controlling shareholders to encroach on listed companies,while controlling shareholders who try to encroach on interests may also use the equity pledge to pave the way.Therefore,the pledge of shares and the benefits expropriation are likely to affect each other.Second,in this case,the company's performance has steadily increased in the early stage of the equity pledge,that is,the "neutral equity pledge" period,and has not been negatively affected by the large proportion of equity pledge by controlling shareholders.However,the capital raised by the equity pledge also meets the financing needs of controlling shareholders.During the period of "malicious equity pledge",although the stock price showed excessive losses before the stock pledge and sent warning signals to investors,the information disclosure of listed companies was not timely,making it difficult for controlling shareholders and actual controllers to be restrained.As the acts of controlling shareholders and actual controllers are gradually unveiled,the profitability,solvency and operating ability of listed companies are fatally hit and the value of the companies is seriously damaged.Finally,this paper puts forward suggestions from the aspects of internal governance,external supervision and small shareholders,hoping to provide some useful supplements in the fields of equity pledge and benefits expropriation.