Analysis Of The Motivation Of Controlling Shareholders To Increase Their Shareholding Under Equity Pledge

The controlling shareholders who dominate listed companies in China are usually state shareholders or corporate shareholders,and before the equity split reform,this part of the controlling shareholders could not hold the company’s shares in the secondary market trading hands.With the completion of the equity split reform,all shareholders of listed companies have the same shares and the same rights,and the controlling shareholders can also freely trade in the secondary market,and the price of the shares has a greater impact on the wealth of the controlling shareholders themselves.At the same time,in order to smoothly carry out the reform of equity splitting,the government has introduced corresponding policies at multiple regulatory levels to encourage the controlling shareholders of listed companies to increase their holdings in the company’s shares.In such a context,the increase in shareholding behavior is increasingly appearing among the controlling shareholders of listed companies.Therefore,the study of the real motivation and impact of the controlling shareholders of listed companies on increasing their shareholdings has strong theoretical and practical significance.As a way for enterprises to obtain liquidity funds,equity pledges are used by a large number of listed companies because of their advantages such as high financing efficiency and simple operation.On the one hand,the equity pledge alleviates the financing constraint pressure faced by the controlling shareholder;On the other hand,the controlling shareholder also bears a certain risk,that is,when the stock price falls sharply and reaches the liquidation line or warning line,if the controlling shareholder cannot add additional guarantees,then the pledgee will sell the pledged shares to cause the loss of control of the controlling shareholder.Therefore,controlling shareholders with equity pledges have an incentive to raise their share prices when the stock price continues to fall to prevent the risk of losing control that may arise.Through psychological research,it has been found that there is a representative bias in people’s way of thinking,which makes people accustomed to "taking shortcuts" in their minds when dealing with uncertain and complex things,that is,using their previous experience to make decisions.The signal theory of traditional economic finance believes that the controlling shareholder,as an insider of the company,can send a signal to the market that the stock price is undervalued,which will increase the demand for the stock from the outside world.Based on the above research and theory,this paper speculates that an important motivation for controlling shareholders to increase their holdings is to reduce the risk of loss of control caused by equity pledges,and in this process,controlling shareholders take advantage of the representation bias of investors.Through empirical research between 2014 and 2020,this paper finds that controlling shareholders have a higher probability of increasing their holdings in the case of equity pledges and that the long-term performance of stock prices after increases is relatively poor.In addition,this phenomenon is more pronounced when the investor representation bias is stronger.Combined with the empirical results,we can confirm the correctness of the speculation in this paper.