The Impact Of Controlling Shareholders’ Equity Pledges On Corporate Innovation

Against the background of the dual circulation,many enterprises are responding to the call of the state to actively and independently carry out innovative research and development,thereby driving the overall level of science and technology in the country and realising the strategy of “Scientific and Technological Powerhouse”.To ensure that enterprises have sufficient funds for stable and continuous investment in innovation activities,A-listed companies have been actively expanding their financing channels.Meanwhile,equity pledges,as a new type of financing,are highly sought after for their greater convenience and lower cost.However,there have been numerous cases of controlling shareholders taking advantage of their dominant position to embezzle funds and misappropriate public funds after pledging their equity,and some even take out circular pledges to repeatedly raise funds,exposing the enterprise to risks that may lead to disruption,the share price’s falling and,in more serious cases,a liquidation crisis.At present,the pledge of controlling shareholders’ equity is a very important topic in China’s securities market and is of concern in theoretical and academic circles.Therefore,it is essential to explore how the subsequent effects and specific mechanisms of controlling shareholders’ equity pledges may affect corporate innovation.At the same time,the transmission paths of controlling shareholders’ equity pledges on corporate innovation are also the focus of this paper.Using data on A-share listed companies from 2007 to 2020,this paper provides a further discussion on the link between controlling shareholders’ equity pledges and firms’ innovation.Also,analyse the heterogeneity for firm size and leadership structure,respectively.firm size,and leadership structure,respectively.In the mechanism study,principal component analysis(PCA)is used to measure management’s risk appetite,while the DEA-Tobit method is used to measure management’s competence,providing an in-depth discussion of the moderating role of the top management in the influence of controlling shareholders on corporate innovation.Further,use the KZ index to measure corporate financing constraints.This variable is introduced into the study for testing transmission paths by empirical evidence.The results of the study show that:(1)The emergence of controlling shareholder equity pledges and the increase in the proportion of equity pledges can significantly hinder the development of innovation activities.(2)In the analysis of heterogeneity,the inhibitory effect of controlling shareholder equity pledges on innovation is more pronounced in larger firms and firms with separate CEO and chairman positions.(3)Management risk appetite and their shareholding play moderating roles in the influence of controlling shareholders on corporate innovation.The higher the risk appetite of management,the stronger the inhibiting effect of controlling shareholders’ equity pledging on corporate innovation;while when the shareholding of management is higher,the inhibiting effect of such controlling shareholders’ pledging on corporate innovation will be weakened.(4)The inhibiting effect of controlling shareholder equity pledges on corporate innovation arises through the intermediate transmission path of financing constraints,with management capacity moderating the intermediary process After the controlling shareholders of A-listed companies pledge their equity,the financing constraints of the company are further strengthened.The key point is that continuous investment in R&D funds is required to achieve higher levels of innovation.However,the increased risk of losing companies’ control affects the controlling shareholder’s enthusiasm for investing in scientific and technological research and development,resulting in a decrease in the level of innovation of listed companies.At the same time,management capacity plays a moderating role in this process,constituting a moderating mediating model that weakens the transmission path of the inhibiting effect of financing constraints as a mediating variable on corporate innovation.Based on the above findings,this paper constructs a more comprehensive framework for the analysis of the mechanisms from the management and corporate perspectives to explore and analyse the relationship between controlling shareholders’ equity pledges and corporate innovation,and to complement the factors influencing corporate innovation.At the same time,the paper also provides empirical and theoretical support to the relevant government departments and enterprises for their policy formulation,both at the enterprise level and at the management level,to mitigate the risk of controlling shareholders’ equity pledges,promote enterprise innovation and ultimately achieve high-quality development of the Chinese economy.