Study On The Impact Of Controlling Shareholders’ Equity Pledges On Corporate Performance Of GEM Companies

With the rapid development of the market economy,GEM companies,mainly SMEs and high-tech enterprises,have gradually revealed their lack of capital,weak debt servicing and financing ability compared to the main board market,and are facing more serious financing constraints,which have led to a massive reduction and departure of corporate executives and a significant decline in corporate performance.As an emerging financing guarantee,equity pledge is favored by many controlling shareholders for its convenient,effective and inexpensive features,and they choose to invest funds in themselves or affiliated enterprises through equity pledge to achieve the purpose of interest appropriation.Through an in-depth investigation of controlling shareholders’ pledging behavior,we analyze what impact the occurrence of equity pledges can have on the performance of GEM companies and what role internal control plays in it.Strengthening research on these issues can,on the one hand,provide practical internal environment control solutions for China’s GEM companies to strengthen internal control construction and improve corporate performance,and also provide opinion references for relevant regulatory authorities to improve the construction of equity pledge system and regulate shareholders’ pledging behavior;on the other hand,it is expected to deepen the awareness of small and medium shareholders and external investors on the economic consequences of equity pledges,and thus accurately identify investment On the other hand,it is expected to deepen the awareness of small and medium shareholders and outside investors about the economic consequences of equity pledges,so as to accurately identify investment risks and effectively protect their interests.This paper is divided into six parts: the first part analyzes the literature on equity pledges,internal control and corporate performance and the relationship between them;The second part proposes the hypotheses of this paper by combining the relevant concepts and theoretical foundations of equity pledge and internal control;the third part establishes a panel data model by collecting data of 1213 GEM companies in China from 2017-2022 for five years,and incorporates internal control as a moderating effect into the model,The fourth part conducts an empirical analysis to verify the impact of controlling shareholders’ equity pledge on firm performance and whether internal control has a moderating effect in controlling shareholders’ equity pledge and firm performance.The study shows that(1)equity pledging by controlling shareholders can negatively affect the performance of GEM firms.(2)High quality internal control significantly weakens the negative relationship between controlling shareholder equity pledges and GEM companies performance,and internal control plays an inverse moderating role between the two,The fifth section draws conclusions and proposes corresponding countermeasures:(1)Strengthen the sense of responsibility and broaden the channels for corporate debt financing;(2)give full play to the moderating effect of internal control,establish a sound internal control quality evaluation system,and strengthen the internal oversight management mechanism;(3)strengthen risk management,optimize the construction of information systems and the information disclosure mechanism of equity pledges,so as to prevent and reduce the risk of equity pledges(3)strengthen risk management,optimize information system construction and information disclosure mechanism of equity pledge,so as to prevent and reduce the risk of equity pledge,regulate equity pledge,and provide more reliable financial services for GEM companies and capital market.Finally,The sixth section points out the shortcomings in the research process and provides an outlook on possible future research directions.