Controlling Shareholder Equity Pledge And Charitable Donation

In recent years,the development of shareholder equity pledge has rapidly become an important way of financing for controlling shareholders,which enables controlling shareholders to easily obtain financial loans without transferring their controlling rights,but it also brings the following problems:It is said that the high proportion of controlling shareholders’ equity pledge has high pledge risks,which is not conducive to the healthy and stable development of the capital market.On the other hand,the information transparency of China’s capital market is low,and investors can easily interpret the controlling shareholder’s equity pledge event itself and its subsequent business decisions as negative events that will adversely affect the reputation of the company,thereby triggering a drop in stock price and even a transfer of control.Existing research shows that after the controlling shareholder’s equity is pledged,the risk of transfer of control rights and the degree of information asymmetry between the company and creditors are intensified,which may lead to aggravation of the financing constraints of the company.At the same time,companies with higher equity pledge ratios face higher risk of transfer of control rights.Therefore,as the equity pledge ratio increases,controlling shareholders are motivated to squeeze the funds originally used by listed companies for innovation investment and cash dividends to cope with the fall in stock prices.the risk of stock liquidation(Li Changqing et al.,2018).However,companies under the controlling shareholder’s equity pledge scenario are still keen to make large charitable donations,and even tend to spend more cash for charitable donations as the pledge ratio increases.What is the motivation behind the controlling shareholder’s charitable donation after the equity pledge?It is necessary to discuss this issue.In order to answer the above questions,this paper studies whether the controlling shareholder will increase the amount of charitable donations under the equity pledge scenario to improve the reputation of the company,and further explore the impact of corporate governance on the relationship between the two.In further analysis,in order to test whether the controlling shareholder’s equity pledge enterprise has achieved reputation management through charitable donations,considering that the reputation level of successful companies with reputation management is higher and the stock market performance may be better,this paper analyzes the reputation level of the enterprise and the stock market.The two indicators are reflected to verify the effect of the controlling shareholder’s equity pledge enterprise’s reputation management through charitable donation.At the same time,considering the differences in the reputation management motivation of different companies with the characteristics of controlling shareholders’ equity pledge,this paper also conducts a heterogeneity analysis of the number of controlling shareholders’ equity pledges and the number of pledged parties.The study found that the controlling shareholder’s equity pledge will make charitable donations to improve the reputation of the company.With the increase of the controlling shareholder’s equity pledge,the amount of corporate charitable donations will also increase,and the relationship between the two will weaken when the level of corporate governance is high..Further research found that after the equity pledge,the company’s reputation level was significantly reduced,and charitable donations could weaken the negative impact of the controlling shareholder’s equity pledge on the corporate reputation level;from the perspective of the stock market reaction,the controlling shareholder’s equity pledge of charitable donations.During the window period,a good market response was obtained,that is,charitable donations can significantly reduce the adverse impact of controlling shareholders’ equity pledge on corporate reputation,which verifies the effectiveness of charitable donation reputation management;The greater the number of pledged parties and the number of pledges,the greater the amount of charitable donations of listed companies,which further verifies the motives of the controlling shareholder’s equity-pledged enterprise for reputation management through charitable donations.On the basis of the existing literature,this paper empirically analyzes whether enterprises will increase the amount of charitable donations in the scenario of controlling shareholder equity pledge,thereby improving the reputation level of enterprises.Through the research,the possible innovations of this paper are mainly reflected in:(1)This paper enriches the research on the economic consequences of controlling shareholders’ equity pledge.As the scale of equity pledge by controlling shareholders expands year by year,scholars at home and abroad have conducted intense discussions on the economic consequences of equity pledge by controlling shareholders.The existing literature mainly studies the opportunistic behavior of controlling shareholders after equity pledge from the perspective of agency,and pays less attention to controlling shareholders.The impact of equity pledge on corporate charitable donations.Although there is a small amount of literature that views charitable giving as a means for controlling shareholders to reduce control risk,there is no consensus on their motivation for giving.From the perspective of corporate reputation management,this paper examines the impact of controlling shareholder equity pledge on corporate charitable donation behavior,and enriches the research on the economic consequences of controlling shareholder equity pledge.(2)Expanded the research on the motivation and influencing factors of listed companies’ charitable donations.With the deepening of my country’s market economic system reform,reputation management has increasingly become an important consideration for listed companies to make charitable donations,but related research is relatively rare.This paper studies the reputation management demands of listed companies pledged by controlling shareholders to make charitable donations,and enriches the related research on the motives of listed companies for charitable donations.(3)Although the existing literature has used reputation insurance theory to explain the charitable donation behavior of enterprises,there are relatively few literatures based on the perspective of enterprise reputation management.Based on the perspective of corporate reputation management,this paper explains the impact of controlling shareholder equity pledge on charitable donations,and supplements relevant research in the field of corporate reputation management theory.