Controlling Shareholders’ Equity Pledge,dividend Policy And Control Transfer Risk

Equity pledge loans are loans in which borrowers pledge their shares to commercial banks,trust companies and other financial institutions to obtain funds,and are commonly used by controlling shareholders of listed companies or institutional investors.The emergence of equity pledge loans can alleviate the pressure caused by credit risk losses of financial institutions to a certain extent and facilitate the solution of the problem of difficult guarantee in the financing process for those who are short of capital,so it has become an important channel for controlling shareholders to solve the financing bottleneck.However,equity pledge financing is not risk-free for controlling shareholders.Once the price of the pledged stock hits the closing line and the controlling shareholder is unable to redeem or provide additional security in a timely manner,the pledgee has the right to compulsorily close the pledged stock and the controlling shareholder will then face the risk of transfer of control.According to Wind statistics,as of December 31,2021,a total of 3,883 shareholders of listed companies in China’s A-share market have pledged their shares,and nearly 100 companies have a controlling shareholder’s equity pledge ratio even as high as 100%.And during the period of equity pledge,according to the provisions of China’s Security Law and the Measures for Stock Pledge Repurchase Transactions and Registration and Settlement Business,the pledgee is entitled to receive the yields arising from the pledged items during the pledge duration.Therefore,the dividends generated during the pledge of controlling shareholder’s equity can be used to offset part of the loan principal and interest of the pledgee,while these dividends also become the "margin" of the controlling shareholder’s equity pledge loan in disguise,which also leads to the dividend policy of the listed company will have an impact on the behavior and consequences of the controlling shareholder’s equity pledge loan.Based on the above background,this paper firstly discusses the background,significance and methodology of the study of controlling shareholders’ equity pledges,and briefly outlines the general framework of this paper and proposes the possible innovation points of this paper.Secondly,the paper briefly summarizes and reviews relevant domestic and international literature on the motivation of equity pledges and their economic consequences,the impact on the risk of transfer of control,and the impact of dividend policy on the risk of transfer of control in the context of equity pledges.Next,the basic connotations of equity pledges and transfer of control risk are reviewed,and the principal-agent theory and separation of powers theory related to controlling shareholders’ equity pledges,the control return theory related to transfer of control risk,the signaling theory related to dividend policy,and the nominal price illusion theory are explained to pave the way for the subsequent application.After that,we construct a pricing model for controlling shareholder’s equity pledges from the perspective of the isomorphic relationship between the "closing line" mechanism of equity pledges and the barrier option,combine the barrier option with the dividend factor,and simulate and analyze the correlation between controlling shareholder’s equity pledges,dividends and control transfer risk.Then,based on the literature review and mathematical model analysis,the six research hypotheses of this paper are proposed,and the models and variables are selected based on the hypotheses.After that,the empirical test of equity pledge,dividend policy and control transfer risk is conducted based on the panel data regression model,and the sample is further subdivided into three groups of property rights,market environment and enterprise size for heterogeneity testing.Finally,we summarize the research results of this paper,put forward targeted suggestions based on the findings,and provide ideas for follow-up research based on the shortcomings and limitations of our own research.The following conclusions are drawn from the findings of this paper:(1)controlling shareholders’ equity pledges aggravate their control transfer risk;(2)compared with state-controlled listed companies,non-state-controlled listed companies have a greater impact of controlling shareholders’ equity pledges on control transfer risk;(3)cash dividend policy has a certain degree of negative moderating effect in the impact of controlling shareholders’ equity pledges on control transfer risk;(4)the higher the liquidity of listed companies’ shares,the weaker the negative moderating effect of cash dividend policy in the impact of controlling shareholders’equity pledges on control transfer risk;(4)The higher the liquidity of listed companies’ stocks,the weaker the negative moderating effect of cash dividend policy in the influence of controlling shareholders’ equity pledges on the risk of transfer of control,while the negative moderating effect of stock dividend policy in the influence of controlling shareholders’ equity pledges on the risk of transfer of control increases;(5)Listed companies in bear markets,non-state-controlled and small-sized,the risk of transfer of control is negatively influenced by equity pledges is more significant,while dividend policy has a stronger negative moderating effect on equity pledges affecting control transfer risk.