Shareholding Structure,political Affiliations And Ultimate Controlling Shareholder Equity Pledges In Listed Companies

With the ongoing reform of the share split,more and more A-share listed companies have changed the old phenomenon of "one share is too big",and the shareholding has become more and more decentralized.Political affiliation as an informal,special government-business relationship between a firm and a government department or an individual with political power may result in bank loan rates and more favorable tax rates for the firm,reducing the firm’s financing constraints.In addition,equity pledges are increasingly sought after by shareholders of A-share companies as a simple and convenient way of financing that not only helps the pledgee to obtain finance quickly but also does not change its control over the target company.Based on the above background,this paper first empirically investigates the relationship between shareholding structure,political affiliation,and ultimate controlling shareholder’s equity pledge under the framework of Type Ⅱ principal-agent,using Chinese A-share listed companies as the research sample from 2010-2021.Based on the relevant research hypotheses,the proportion of equity pledges of ultimate controlling shareholders of listed companies is adopted as its equity pledges measurement variable,the equity concentration,equity checks,and balances,the vertical hierarchy of pyramidal equity structure,and horizontal span of pyramidal equity structure are selected to measure the equity structure of listed companies,and the existence of political affiliation of listed companies and the hierarchy of their political affiliation are chosen as the proxy variables of political affiliation.Next,a panel empirical regression model is constructed,and regression analysis is conducted to empirically test the mechanism of the effect of shareholding structure and political affiliation on the equity pledges of ultimate controlling shareholders.On this basis,this paper constructs the OS index of listed companies to measure the motivation of ultimate controlling shareholders’ equity pledge financing,and chooses the level of connected purchase and sale of companies to measure the motivation of ultimate controlling shareholders’ equity pledge encroachment,and further investigates the influence of ultimate controlling shareholders’encroachment motivation and financing motivation on their pledge ratio.Finally,based on the existing studies,the correlation between shareholding structure,political affiliation,and ultimate controlling shareholders’ motivation to encroach on equity pledges and financing motives are further investigated in depth.Based on the relevant research hypotheses,balanced panel regression models are constructed and the regression results are output in Stata software.Through the above empirical study,this paper obtains the following conclusions.First,it is confirmed that the higher the concentration of listed companies’ equity,the lower the proportion of equity pledged by their ultimate controlling shareholders;on the contrary,the higher the equity checks and balances of listed companies,the higher the proportion of equity pledged by their ultimate controlling shareholders.Second,this paper introduces the pyramidal shareholding structure of listed companies based on equity concentration and equity checks and balances and finds that as the vertical level and horizontal span of the pyramidal shareholding structure of listed companies increase,the pledge ratio of ultimate controlling shareholders decreases.Third,the empirical study finds that the pledge ratio of ultimate controlling shareholders is higher in companies with political connections,and the ultimate controlling shareholders of companies with higher levels of political affiliation tend to choose equity pledge financing,which supports the "predatory hand"of political connections.Fourth,while clarifying the relationship between the equity structure of listed companies and the equity pledges of ultimate controlling shareholders,political affiliation and the nature of ultimate controlling shareholders are introduced,and it is found that the nature of ultimate controlling shareholders and political affiliation jointly suppress the positive effects of equity concentration and pyramidal equity structure of listed companies on the equity pledges of ultimate controlling shareholders.Fifth,drawing on the study of Liu&Liu(2007),this paper introduces the level of connected purchases and sales of listed companies to measure the motivation of ultimate controlling shareholders to encroach on equity pledges,and finds that the stronger the motivation of ultimate controlling shareholders to appropriate on equity pledges,the lower their pledge ratio will be.Sixth,regarding James(1980),the OS index is constructed to measure the financing motive of ultimate controlling shareholders,and it is found that the higher the concentration of listed companies’ equity,the weaker the motive of ultimate controlling shareholders’equity pledge financing;on the contrary,the higher the balance of listed companies’ equity,the stronger the motive of ultimate controlling shareholders’ equity pledge financing.