Research On The Impact Of Controlling Shareholders’ Equity Pledge On The Risk Of Stock Price Collapse

Equity pledge,where the pledgee pledges the shares held by the pledgee,has become a common external financing method for listed companies in China due to the advantages of simple process and lower financing threshold.However,while obtaining funds,the risk also increases.Once the stock price falls to the alert line,the controlling shareholder may be required to provide additional guarantees in case the value of the pledged equity falls.If the solvency is insufficient,the shareholder may face the risk of transfer of control or even be required to pay off the remaining financing amount.In the process of equity pledging,the value of the pledge is determined by the price of the stock being pledged.From the controlling shareholder’s perspective,in order to prevent the transfer of control and to avoid additional pledges as much as possible,it has a strong incentive to manipulate information and manage the market value of the stock,which in turn triggers the risk of share price collapse.As China has been committed to promoting the standardization of equity pledges in recent years,it is particularly important to explore the possible economic consequences of equity pledges and to eliminate the hidden dangers of market operation caused by unreasonable equity pledges.The share prices of listed companies are affected by multiple factors.If shareholders face liquidation due to equity pledges,they may choose to sell a large number of shares to the market,triggering market panic and causing share prices to fall.Or if a shareholder faces the risk of transferring control,he or she may manipulate information and carry out surplus management to affect the normal development and operation of the company for the motive of protecting personal interests.Once the company’s true operating conditions are exposed,market confidence may be shaken,holders sell their shares,share prices fall,and the market panics,creating a vicious cycle of further selling of shares and increasing the risk of share price collapse.There are various life cycles in the development process of listed companies,and their asset size,profitability and operating systems vary with the changes in life cycles.Shareholders’ propensity to pledge their shares varies at different stages,and the life cycle also plays a role in the impact of equity pledges on share price collapse risk.Based on the above analysis,this paper,on the basis of sorting out the ideas of relevant literature,selects a sample of A-share listed companies in China between 2015 and2020,and uses logit models,using theories such as information asymmetry as the cornerstone,to empirically test how equity pledges affect share price crash risk under a lifecycle perspective and the extent of the impact of different lifecycle stages on the relationship between the two.This paper finds that:(1)controlling shareholders’ equity pledging behavior will increase the risk of stock price collapse.(2)Shareholders prefer to make equity pledges when firms are in the growth and decline stages.(3)The positive effect of equity pledging on stock price crash risk is more significant when firms are in growth and recessionary periods compared to mature periods.The research theme of this paper broadens the current research perspective on equity pledges and enriches the corporate life cycle in,while providing a reference for regulating the equity pledging behavior of listed companies.