Research On Equity Pledge Of Major Shareholders And Capital Operation Of Listed Companies ——A Case Study Based On CLOU Electronics

With the fast development of China’s economy,enterprises need more funds to maintain their current market position or seek more development.However,there is a contradiction between the strict financing approval in the capital market and the gradually increasing financing needs of enterprises.In this context,equity pledge financing is favored by capital demanders because of its advantages of convenient financing,few restrictions,low financing cost and the ability to maintain corporate control.According to the Choice database,by the end of 2017,3,433 A-share listed companies had pledged equity,accounting for 99.80%of the total listed companies.At this time,China’s capital market presented a situation of "no shares,no pledge".However,equity pledge financing also has liquidation risk and control transfer risk.With the overall decline of the stock market in 2018,the equity pledge risk raised sharply.In order to prevent the equity pledge risk,the Shanghai Stock Exchange,Shenzhen Stock Exchange and China Securities Depositary and Clearing Co.,Ltd.issued the "Measures for Stock Pledge Repurchase Transactions,Registration and Settlement Business（Revised in 2018）"（hereinafter referred to as the "New Rules on Pledge"）in January 2018.Under the influence of New Rules on Pledge,the overall scale of equity pledge in China declined,with the total market value of pledge dropping from 6.15 trillion at the end of 2017 to 3.68 trillion at the beginning of March 2022.The total proportion of A-share pledge dropping from 10.86%at the end of 2017 to 4.77%at the beginning of March 2022,which means that the overall risk of equity pledge market declines.However,there is still a large stock of equity pledge in China,so it has certain policy implications to study the means of liquidation risk mitigation.The existing empirical researches mainly focus on the mitigation effect of earnings management or information disclosure manipulation on the risk of liquidation,and few scholars pay attention to corporate capital operation.Not to mention the case analysis on how enterprises use capital operation means to avoid the risk of large shareholdersc liquidation.However,the reality is that capital operation has become an important means for listed companies to deal with equity pledge risk by virtue of its advantages of flexible operation and effective implementation.Therefore,starting from the equity pledge behavior of Rao Luhua,the major shareholder of CLOU Electronics,this paper adopts the case study method to research into how the company utilize the assets reorganization,share buyback,increased holdings of executives and equity transfer to relieve the risk positions,and the corresponding implementation effect of each method.It is expected to open the black box of the influence of major shareholders’ behavior on the decision-making of listed companies and make incremental contributions to the research field of equity pledge and capital operation.The study finds that,listed companies try to use capital operation suspension and boosting stock price to alleviate the equity pledging risk.uring the suspension period,the major shareholder’s supplement and release of pledges has an obvious mitigation effect on the liquidation risk,but the capital operation cannot significantly increase the stock price,so the mitigation effect is not obvious.Specifically,first of all,CLOU Electronics announced the asset restructuring to ease the risk by suspending trading.During the suspension period,the major shareholder reduced the pledge ratio by releasing the pledge,thereby reducing the risk of liquidation.Secondly,the repurchase of shares and the increase of executives’ holdings were to slow the release of the stock price by sending positive signals to the market.However,in the context of the economic downturn and the steady decline in share price,these two methods failed to boost the stock price,and their roles in mitigating the risk were weak.Finally,the equity transfer is to alleviate the risk through the dual mechanism of suspension and boosting the stock price.During the suspension period,the major shareholder released and supplemented the pledge for many times,which reduced the pledge ratio and eased the risk of liquidation.At the same time,the equity transfer caused the company’s stock price to rise slightly in the short term,which has a certain mitigation effect on the risk of liquidation.Therefore,the main research contributions of this paper are as follows.First,this paper uses the case study method to discuss how listed companies use capital operation to help large shareholders overcome the crisis,which helps to fill in the lack of case studies on capital operations to mitigate unwind risks.Second,scholars mainly study the countermeasures of liquidating positions,but few studies focus on the effects of these countermeasures.This paper analyzes the mitigation effects of four capital operation methods on liquidating risk,and makes incremental contributions to the research field of the effect of liquidating risk response measures.Thirdly,this paper finds that CLOU Electronics actively applied for suspension to gain time for major shareholder to supplement pledge and cancel pledge,making incremental contributions to the research field of suspension motivation.Fourthly,this paper believes that listed companies are motivated to carry out capital operation to help major shareholders overcome the equity pledge risk,which enricifies the research on the capital operation motivation from the perspective of equity pledge.