Research On The Timing And Market Response Of Controlling Shareholders’ Equity Pledge

Equity pledge is a financing method in which shareholders of listed companies take their own equity as the subject matter of pledge and obtain funds from banks,securities companies and other financial institutions.With the development of China’s capital market,especially after the opening of the floor pledge business in2013,the scale of equity pledge has expanded rapidly.At present,it has become an important financing channel for China’s listed companies and major shareholders.The A-share market is almost "no share without pledge".However,equity pledge not only alleviates the capital problem,but also contains huge risks.In 2018,due to the continuous decline of the A-share market and the gradual outbreak of equity pledge risk,many listed companies’ share prices fell below the early warning line,approached the closing line and even were forced to close their positions.The controlling shareholders were faced with the risk of control transfer,which caused market panic,led to further decline of share prices and formed vicious feedback.Although the number and scale of equity pledge companies have decreased compared with 2018,the attention to equity pledge can not be relaxed.For the controlling shareholder,the capital obtained after the pledge of equity is closely related to the level of stock price.Is there an incentive for the controlling shareholder to overestimate the share price after being pledged? What is the market reaction of controlling shareholders’ equity pledge under different valuation levels? Such research itself has certain theoretical and practical significance.Using China’s A-share listed companies from 2016 to 2020 as a sample,this paper selects stock mispricing to measure the market opportunity,studies the relationship between stock mispricing and controlling shareholder’s equity pledge,and draws the following conclusions:(1)stock mispricing has a significant positive impact on the controlling shareholder’s equity pledge intention.(2)Financing constraints promote the positive relationship between stock mispricing and the willingness of controlling shareholders to pledge their shares.(3)Due to the difference of financing constraints,compared with state-owned enterprises,the timing motivation of controlling shareholders of listed companies of private enterprises is stronger,and they are more inclined to pledge their equity when the stock price is overvalued.(4)The announcement of controlling shareholders’ equity pledge will have a negative market reaction,and the market reaction of equity pledge under different valuation levels is also different.Further research shows that stock mispricing will have a significant negative impact on the cumulative excess return of controlling shareholders’ equity pledge announcement.This paper also tests the robustness by replacing the stock mispricing measurement index,changing the construction method of financing constraint KZ index,and selecting the market adjustment model to study the market response.The research conclusion is still valid.Finally,this paper puts forward targeted policy suggestions according to the research conclusions.The contribution of this paper is mainly reflected in two aspects:(1)from the perspective of financing constraints,explore the regulatory role of financing constraints between stock mispricing and controlling shareholder equity pledge,and based on this,test the heterogeneity between state-owned enterprises and private enterprises.(2)It is found that the market reaction of the pledge announcement of the controlling shareholders is different under different valuation levels,and further reveals that the wrong pricing of stocks will have a negative impact on the cumulative excess return.