Controlling Shareholder Equity Pledge And Corporate Social Responsibility

Equity pledge refers to the act of a shareholder using the shares or other securities held by him as pledges to obtain funds provided by the relevant pledging parties such as commercial banks or financial institutions,and repaying the funds to the pledging parties in accordance with the agreement within a specified period,which has the advantages of quick arrival of funds,low transaction costs and few approval procedures.Since the opening of equity pledge trading on the Shanghai and Shenzhen Stock Exchanges in 2013,China’s equity pledge market has developed rapidly with the guidance of national policies and the improvement of the system.As a new financing concept,equity pledges can relieve the financial pressure of the controlling shareholders of listed companies and reduce the liquidity gap within a short period of time.However,with the volatility of the capital market,the potential risk of equity pledging by controlling shareholders may lead to unsustainable business development or operational difficulties of listed companies.Specifically,the pledging of shareholdings may,on the one hand,expose the controlling shareholder to the risk of transfer of control and,on the other hand,lead to future financing risks for the enterprise,which may eventually lead to the controlling shareholder changing the subsequent business decisions and strategic planning choices of the enterprise,affecting the sustainable development of the enterprise.The fulfillment of social responsibility,as a key part of the long-term strategic planning of an enterprise,interprets the mission and commitment of an enterprise,brings vitality and vigour to the enterprise and has far-reaching significance for the enterprise to achieve sustainable and high-quality development.Does the pledge of controlling shareholder’s equity affect the fulfillment of corporate social responsibility? What are the specific mechanisms at play? And how can we effectively avoid the risk of equity pledging and enhance the awareness of corporate social responsibility?To address the above issues,this thesis firstly summarises and compares the existing literature,conducts theoretical analysis on the basis of relevant theories and deduces the research hypothesis of this thesis.Secondly,we take the A-share listed companies in Shanghai and Shenzhen from 2010 to 2020 as the research object,define the main variables with reference to the existing literature,select control variables based on the relevant literature and combined with the actual research,construct a relevant model and adopt an empirical test to investigate the relationship between controlling shareholders’ equity pledges and corporate social responsibility.In addition,a series of robustness tests were conducted to ensure the reliability of the research results,such as replacing the definition of variables,lagging the period of variables,choosing propensity score matching method and instrumental variables method.A mediating effects model is used to investigate the mechanism of action and further investigate the moderating role of the nature of ownership,audit quality and institutional investor shareholding.Finally,based on the theoretical analysis and empirical results of the previous thesis,we draw conclusions and make relevant policy recommendations.The findings show that:(1)controlling shareholders’ equity pledges are significantly and negatively related to corporate social responsibility;(2)financing constraints play a conduction role between controlling shareholders’ equity pledges and corporate social responsibility;controlling shareholders’ equity pledges lead to restrictions on corporate refinancing activities,intensifying the degree of financing constraints and reducing the level of corporate social responsibility performance;(3)the negative impact of controlling shareholders’ equity pledges on CSR performance is more significant in non-state-owned listed companies than in stateowned companies;(4)high quality external audits and a high percentage of institutional investor shareholdings act as effective external monitoring forces to moderate the negative impact on CSR performance following controlling shareholder shareholding pledges.According to the findings of the study,in order to prevent and resolve the risk of equity pledges by controlling shareholders and guide enterprises to assume social responsibility,this thesis puts forward the following policy recommendations:(1)The government should improve the construction of the legal system related to equity pledges and corporate social responsibility,appropriately raise the entry threshold of the market related to equity pledge financing,restrain unreasonable equity pledges,strictly limit the proportion of equity pledges by major shareholders,and guide enterprises to change their business philosophy and incorporate the fulfillment of social responsibility into their strategic development plans;(2)the financial regulator should establish a long-term effective mechanism for resolving equity pledge risks,strengthen the daily dynamic supervision of pledge-related parties,strictly implement risk prevention and supervision requirements,manage equity pledge risks properly,and create a stable and healthy equity pledge market;(3)companies should attach great importance to the risk of controlling shareholders’ equity pledges,strengthen their sense of social responsibility,give full play to the industry expertise and information advantages of institutional investors,and make use of the monitoring role of high-quality external audits to improve corporate governance and promote their own long-term healthy development.