A Study On The Interests Encroachment And Economic Results Under The Equity Pledge Of Reclaim Construction

With the continuous development of China’s capital market,a variety of financing tools emerge as the times require.At the same time,equity pledge has rapidly become the preferred financing means for companies because of its low cost,simple operation,less restrictions and strong liquidity.With the rapid development of equity pledge,listed companies often have problems due to frequent use of equity pledge financing.After the company’s controlling shareholders choose the equity pledge financing method,It will immediately lead to the separation of the two rights of the controlling shareholders of the listed company,thus increasing the possibility of the controlling shareholders to encroach on the interests of the listed company.The frequent and large amount of pledge behavior of the controlling shareholders will inevitably bring a variety of economic consequences to the company.Therefore,it is very necessary to study the high proportion of equity pledge behavior.By studying the motivation and economic consequences of equity pledge behavior,we can provide reference for the listed companies in the capital market who are keen to use equity pledge for financing,make them use equity pledge financing more standardized and reasonable,and make investors,financial institutions and regulators review equity pledge behavior rationally.Therefore,this paper chooses private listed company RECLAIM CONSTRUCTION as the research object,and uses case study method and event study method to study the motivation,subsequent interest encroachment behavior and economic consequences of the company’s controlling shareholders’ equity pledge.Firstly,This paper combs all the relevant literature and theory of equity pledge.Then it explains the basic situation of RECLAIM CONSTRUCTION and the pledge behavior of shares since the listing of company,and analyzes its pledge motivation.Then,it analyzes the interest encroachment in recent years.Then,we use the event study method to estimate the cumulative excess rate of return,explore the market reaction to the equity pledge behavior of RECLAIM CONSTRUCTION,consult the data to analyze the impact of equity pledge behavior on stakeholders,use the Z-score Model to show the financial risk faced by listed companies,use the financial ratio to evaluate their performance,and use the economic value-added to measure the value creativity of the company.This paper analyzes the economic consequences of high proportion of equity pledge from multiple perspectives.Through the research,we find that with the occurrence of high proportion of equity pledge,the controlling shareholders of RECLAIM CONSTRUCTION,due to the increase of the degree of separation of the two rights,based on the advantages of private control and asymmetric information,make the behavior of interest encroachment,which brings negative market effect to the listed firms in a short period of time,increases the financial risk faced by the company,and has a negative impact on the company’s performance and value It affects and infringes the interests of other stakeholders.Therefore,the author believes that although equity pledge financing is relatively the best of many financing methods that listed companies can choose,listed companies still need reasonable and appropriate use,especially private listed companies should be more careful when choosing financing methods in the development process.The listed companies need to improve the internal governance structure and strengthen the supervision of controlling shareholders’ equity pledge behavior;the government and regulatory departments should improve the relevant information disclosure provisions of equity pledge as far as possible;at the same time,creditors should strengthen the risk control of their own claims,and investors need to improve their risk identification ability and prevention awareness.