Research On Controlling Shareholder’s Equity Pledge And Annual Report Text Tone Manipulation

Pledge of stock rights means that a holder pledges the stock rights of a company to a financial institution to apply for financing or to offer a guarantee for a loan to a third party.During the pledge period,the pledgee has the priority of claim as to the pledged shares and their fruits,and the pledger still retains the voting rights and control rights to the pledged shares.As a consequence,the shareholder can monetize the value of stock rights quickly through pledges without losing control over them.In practice,a warning line for liquidation is generally agreed between the pledgee and the pledger.When the stock price falls below this line,the pledged shares will be mandatorily liquidated,and the holder of the pledged shares will thus take the risk of control transfer.According to some studies,once the holder pledges stock rights,the listed company will be forced to implement earnings management,tax planning,strategic charitable donations and the like to create a positive corporate image to cater to the market and uplift the stock price.Chinese people are traditionally able to get the message behind the words,and securities market participants are no exception.In the Chinese annual report,the text tone of the annual report discussed and analyzed by the management has been proved by relevant literature to contain a certain message,and its positiveness can affect investment decisions.In this regard,will the listed company with a pledge of stock rights take advantage of this feature to interfere with the judgment of investors by manipulating the positiveness of text and reducing the risk of control transfer?This research based on text analysis explored the behavior characteristics of listed companies after the holder pledges stock rights and clarified the text characteristics of such companies.With the 2007-2018 data of listed companies on the main board of Shanghai and Shenzhen Stock Exchanges selected as research samples,the research methods and conclusions of relevant literature on the pledge of stock rights and text analysis were first summarized.Second,based on information asymmetry theory,signal transfer theory and behavioral finance theory,theoretical hypotheses and research models were put forward.Empirical analysis methods such as multiple regression were employed to test the influence of pledge of stock rights on the manipulative text tone of the annual report,validate the motives of uplifting stock price and research the synergy of manipulative text tone and readability.In addition,the supervisory role of the external information environment such as securities analyst and the auditor was analyzed and discussed.Conclusions were drawn as follows.First,the annual report of a listed company with a pledge of stock rights has a more positive and manipulative tone,for the controlling shareholder under the pressure of control transfer demands uplifted stock price and thus takes advantage of its control over the listed company to force the management to use excessively positive statements in the annual report,misleading the market to evaluate the company higher.Second,in the face of the higher pressure of stock price decline,the controlling shareholder is more urgent to ask the management to beautify the report text,and the text tone is more positive and manipulative,indicating that the text manipulation is mainly driven by the motives of uplifting stock price.Third,people are more likely to be affected by positive words in dealing with ambiguous texts(Tan et al.,2014).Therefore,manipulative readability and text tone are often combined,and it is the same in the context of the pledge of stock rights.When the report text is less readable,the tone is more manipulative.Finally,according to the results of the group regression test,securities analysts and auditors depending on their professional analysis methods and experience can effectively restrain the manipulative text tone of the listed company with a pledge of stock rights by means of external information supervisory methods such as individual stock tracking and annual report auditing.By extending text analysis to the research of pledge of stock rights,this thesis supplemented the research literature on text tone of annual report and pledge of stock rights and clarified the impact of the pledge of stock rights on listed companies.According to the above conclusions,it is necessary to expedite system construction for text information disclosure,compile a Chinese accounting text corpus and application guide,and develop an operable text information supervision standard and evaluation system.Besides,there is a need to continue to reinforce the supervisory role of external information intermediaries.