Controlling Shareholder Equity Pledge And Stock Price Crash Risk

In the Chinese capital market,equity pledge financing is favored by shareholders due to its advantages such as fastness,low cost,and retention of control.Scholars have pointed out that equity pledge does affect the company’s performance.Considering the impact of company performance on stock prices,and the mechanism design of the liquidation line of equity pledges,there must be a certain relationship between equity pledges and stock price fluctuations.Then will controlling shareholder equity pledge exacerbate the risk of a company’s stock price crashing?This article combines controlling shareholders’market capitalization behavior,information transparency,and investors’ response to explore the mechanism of the effect of equity pledge on the risk of stock price crash.Based on quarterly data of China’s listed companies from 2007 to 2019,this paper examines the controlling shareholder’s equity pledge through a fixed effect model.Test methods such as propensity score matching method,instrumental variable method and substitution variable method are used to ensure the robustness of the results.Finally,by through the grouping of information transparency and market situation,the mechanism by which the high proportion of controlling shareholders affects the risk of stock price crashes is further examined.Results show that there is a U-shaped relationship between equity pledges and the stock price crash.When the equity pledge rate is lower than the threshold,the market capitalization behavior of controlling shareholders,in order avoid the risk of transfer of control rights,suppresses the risk of stock price collapse.However,when the rate is higher than the threshold,investor panic caused by opaque information"erodes" market value management achievements,causing a significant positive correlation between the controlling shareholder’s equity pledge and future crash risk.According to the empirical results above,this paper proposes some policy suggestions such as perfecting the disclosure requirements of equity pledge information,increasing supervision,and improving the information environment of the capital market.