Study On The Motivation And Economic Consequences Of Equity Pledge Of Spearhead’s Controlling Shareholders

Because of its advantages of simple procedure,low cost and fast financing speed,equity pledge has always been an important means of financing for major shareholders of listed companies.With the rapid development of Chinese capital market of equity pledge frequency and pledge will become more and more high,the proportion of the risk is accompanied by a variety of problems,equity pledge crisis of 2018 reached its peak,pledged stock broke news have been on the market,so the problem of controlling shareholders of listed companies equity pledge is always a hot topic in the research of the capital market and academics.Therefore,this paper takes Spearhead as a case study to analyze the motivation and economic consequences of equity pledge by the controlling shareholders of the company.Based on the research conclusions of domestic and foreign scholars,this paper conducts an in-depth study on the equity pledge behavior of Spearhead’s controlling shareholders.First of all,it mainly introduces the basic situation of equity pledge of Spearhead,and then deeply analyzes the motivation of equity pledge of the controlling shareholders of the company and the main path of the economic consequences of the company.Secondly,this paper studies the economic consequences of controlling shareholders’ equity pledge from four perspectives:market reaction,financial performance,financial risk and corporate value.Financial index method is used to study the influence of controlling shareholder’s equity pledge on the company’s financial performance.Z-score model is used to study the financial risk caused by equity pledge.Using economic value added,this paper explores the influence of equity pledge behavior of controlling shareholders on corporate value,and points out the causes of the above adverse economic consequences.Finally,some suggestions are put forward for the problems reflected in the above analysis.The results show that there are three main motivations for controlling shareholders’ equity pledge,namely,meeting financing needs,maintaining control rights and encroachment of interests.The economic consequences of equity pledge by the controlling shareholders of the company are mainly shown in the following four aspects: First,frequent and high proportion of equity pledge by the controlling shareholders for a long time will send negative signals to the market,leading to the fluctuation and decline of the company’s stock price.The second is to use the financial index method to study the company’s operating situation,the results show that the company’s profitability,solvency,operating capacity and growth capacity have declined significantly.Third,z-Score model is used to find that the controlling shareholder’s equity pledge has brought financial risks to the company.Fourth,EVA and EVA momentum indicators are used to find that controlling shareholders’ equity pledge not only reduces the value of the company,but also reduces the value creation efficiency of the company.Finally,corresponding suggestions are given for the problems reflected in this paper in order to expect the healthy development of equity pledge market.