The Study On Controlling Shareholders’ Equity Pledge And Financial Distress Of Oriental Garden

Since the emergence of equity pledge as a financing method,by the end of 2017,the companies whose shares pledged accounted for 98% of the total number of Listed Companies in the stock market of China,almost showing the situation of "no shares without pledge".However,since the beginning of 2018,the stock market has a poor performance,resulting in frequent "Thunderbolt" events of equity pledge due to the falling of stock price.Even many listed companies control rights has transferred.The high proportion of equity pledge of controlling shareholders of private enterprises and the lack of liquidity of listed companies reflected by the phenomenon of "Thunderbolt" of equity pledge deserve attention.The research on this topic is of great significance for private listed companies to maintain healthy development and the stability of China’s stock market.In order to find out the purpose of the high proportion of equity pledge by the controlling shareholders in private enterprises and the causes of the company’s financial difficulties,this paper select the Oriental Garden as the research object.With the help of relevant government departments,this company’s financial difficulties and the closing crisis of the controlling shareholder’s equity pledge solved.This paper takes case study as the main research method,combined with the event study method and financial analysis method,analyzing the stock pledge behavior of the controlling shareholders in the case and the causes of the financial difficulties of the enterprise.After the case study,it finds that the emergence of equity pledge provides the controlling shareholders with the tools of cashing out and reinvestment on the premise of ensuring the stability of their control rights.When the listed companies perform well,the rise of stock price also makes the wealth of controlling shareholders increase a lot,which will aggravate the impulse of controlling shareholders to use equity pledge to cash out and reinvest.Eventually,it becomes a phenomenon of high proportion and high-level pledge.However,the growth of the company’s achievements were due to high debt,which increases the company’s financial risk.In 2018,the tightening of the external financing environment has made it more difficult for private enterprises to raise funds,which has caused liquidity problems for companies that previously relied heavily on debt financing.The decline in stock prices caused by the exposure of corporate financial problems has caused controlling shareholders to face the forced liquidation of pledged stocks,which also explains the frequent occurrence of “pounding” of equity pledges in the A-share market in 2018.Therefore,the state’s “de-leveraging,credittightening” policy on the one hand forces companies to deleverage by changing the company’s external financing environment,and on the other hand changes the stock price.On the other hand,through the change of the stock price,the controlling shareholders with an excessively high proportion of equity pledged were forced to reducing their debt by liquidating their positions,or selling another stocks to release the pledged stocks.