A Study On The Impact Of Controlling Shareholders’ Equity Pledges On Corporate Financing Costs

The development of a company must be supported by sufficient funds,so corporate financing is related to the survival of the company.As a new financing model,equity pledge has the advantages of easy operation,high efficiency in obtaining funds and low financing cost,and has gained the favor of companies and financial institutions as soon as it was established.However,the use of equity pledges by controlling shareholders to raise funds can also give rise to an increase in associated risks.Equity pledges,especially those of controlling shareholders,although it is a personal act of the shareholder,have a high price volatility because of the special nature of the pledge,and if the share price continues to fall,then the possibility of closing out the position will increase,which will have a great impact on the internal company and even the capital market.For listed companies with controlling shareholders’ equity pledges,creditors,the external investors,will also face greater investment risks,so whether creditors will need higher risk premiums to compensate,and what kind of moderating and mediating effects some internal and external factors of the company will have on the relationship between the two are the key issues to be analyzed in this thesis.The article selects all A-share listed companies in Shanghai and Shenzhen markets during 2016-2021 as the main research sample,focuses on the impact of controlling shareholders’ equity pledging behavior on corporate financing costs,analyzes and finds the moderating role of several corporate governance mechanisms such as transparency of accounting information,equity checks and balances,and the nature of property rights in the relationship,and further explores the mediating effect of controlling shareholders’ shelling out.By building the model and fixing the industry and year for multiple regressions,this thesis concludes the following:(1)Listed companies with controlling shareholder equity pledges will bear higher financing costs.(2)Higher transparency of accounting information can enable outside investors to obtain more accurate corporate accounting information,This can further reduce investment risk by reducing the degree of information asymmetry,thereby weakening the positive relationship between controlling shareholder equity pledges and financing costs(3)With a high degree of equity checks and balances,other shareholders will form an interest group to restrain the behavior of the majority shareholder,thus improving its internal governance mechanism,reducing the "emptying" behavior of the majority shareholder and weakening the positive effect of the controlling shareholder on the financing cost of the company.(4)By distinguishing between state-owned and non-state-owned enterprises,we find that state-owned enterprises have significantly less impact on financing costs after equity pledges than non-state-owned enterprises.(5)Controlling shareholders’ shelling out acts as a mediating effect between controlling shareholders’ equity pledges and firms’ financing costs.Finally,by further replacing the explanatory variables,changing the sample period and endogeneity tests for robustness checks,it is verified that the previous conclusions still hold.This thesis proposes countermeasures in terms of improving the equity pledge system,strengthening the internal and external management and supervision of companies,and raising investors’ risk awareness,This is of positive significance in regulating the pledging of controlling shareholders’ shares,promoting the healthy development of the capital market and protecting the interests of small and medium shareholders and creditors.