The Impact Of Equity Balance On Earnings Management Under The Equity Pledge Of Major Shareholders

As a financing method with simple procedures,strong realisation ability and unrestricted use of financing,equity pledge provides a new method for enterprises to finance their business activities such as debt repayment,and various industries have successively financed themselves through equity pledges.The real estate industry is under pressure from restricted financing channels due to the tightening of bank credit,and the industry itself is characterised by a high gearing ratio,making equity pledges increasingly popular among real estate companies.As at February 2023,there were 2,485 companies with pledges in A-shares,with a total pledge ratio of 4.39% and a total pledge market value of 3.44 trillion yuan,of which the proportion of equity pledges in the real estate industry has remained at the highest level in recent years,with a total of 60 pledging companies and a total pledged share capital of 35.28 billion yuan.At the same time,the pledging behaviour of major shareholders can easily have an impact on enterprises.Major shareholders often use a series of surplus management tools to prevent the transfer of control and the risk of forced liquidation of their shares,and the real estate industry currently has the highest average ratio of equity pledges and a high level of surplus management among all sectors in China.Existing research has found that with the proportion of equity pledged by major shareholders is significantly and positively correlated with the degree of surplus management.The surplus management activities carried out by major shareholders in response to forced liquidation will increase the investment risk of other shareholders,but such surplus management can be curbed to a certain extent through equity checks and balances between different shareholders,thereby reducing the risk.Both Macrolink and Vanke are well-known companies in the real estate industry and both have experienced high percentage of equity pledge transactions by major shareholders,but there is a significant difference in the degree of surplus management before and after the pledge between the two,and this paper notes that the two case companies are particularly different in terms of the degree of equity checks and balances.Therefore,this paper selects Macrolink and Vanke as case companies to investigate the impact of pledging of majority shareholders’ equity on surplus management in the form of a case study,and to compare and analyse the effect of the degree of equity checks and balances on the degree of surplus management after pledging.This paper draws on theoretical foundations such as principal-agent theory and incomplete contract theory,incorporates relevant previous research,statistics on the process of equity pledges of Macrolink and Vanke,qualitatively and quantitatively analyses the extent of accrued and real surplus management of Macrolink and Vanke,compares the differences in equity structure,and then compares the impact of equity checks and balances on surplus management under pledges of major shareholders’ equity.This paper concludes,based on relevant theoretical analysis and case data,that: firstly,a degree of surplus management will be implemented to the company before and after the pledge of the equity of the majority shareholder,which can expand the scale of financing as well as prevent control risk;secondly,the equity of the majority shareholder tends to accrue surplus management before the pledge,while it tends to real surplus management after the pledge;thirdly,the degree of equity checks and balances has a suppressive effect on upward surplus management under the pledge of the equity of the majority shareholder.Based on this,this paper also proposes some related proposals,including the improvement of the shareholding structure,the implementation of controls on surplus management and the improvement of internal control mechanisms.