Analysis Of The Motivation And Effect Of Share Repurchase In The Context Of Equity Pledge

Share repurchase is a tool for financial management of listed companies,which emerged in western capitalist countries and has become a common financial tool since its development.Due to the limitations of China’s national conditions and relevant policies,share repurchases have emerged later and lagged behind in development in China,and the number of enterprises conducting share repurchases has been relatively small.With the rapid development of China’s economy and market,the revision of the Company Law in 2018 has led to a "buyback wave" in China’s capital market,and the motives for companies to implement share repurchases have become complex and diverse.Generally speaking,share buybacks can send positive signals to the market that the company is operating well and has sufficient funds,which can enhance investors’ confidence and thus drive up the share price.However,some companies still conduct share repurchases when they do not have sufficient capital and the share price does not deviate from the company’s value.Identifying the real motives for share repurchases and analyzing the repurchase effect are of great significance for listed companies to correctly understand share repurchases and for regulators to ensure the good operation of the capital market.This paper selects Zhejiang Wanfeng Aowei Steam Wheel Company Limited,which has conducted three share repurchases in less than three years since 2018,as a case study.Wanfeng Aowei is one of the largest automotive aluminum alloy wheel manufacturers in China,but its share price fell all the way before its share repurchase,the company’s cash flow is not abundant,the major shareholder has a large proportion of equity pledges,and there is no lack of investment opportunities,so whether the real motivation for the share repurchase in this case is really as stated in the announcement requires further study.In this paper,a combination of literature research method and case study method is used to fully study the case company.Based on a review of the current status of domestic and international research,the first share repurchase event of Wanfeng Aowei in 2018 is studied in its entirety.A detailed discussion of the motivation and economic effects of share repurchases by Wanfeng Aowei in the context of equity pledges is focused on,and economic formulas are also used in the analysis process,combined with a large number of charts and graphs.First,the basic situation of the case company,the equity pledge situation and the share repurchase event are briefly introduced,while the background of this share repurchase and the process of important repurchase nodes are elaborated;second,the possible motives of the share repurchase are analyzed in the context of the company’s financial situation,stock price,equity pledge situation and corporate value,and the real motives of its share repurchase are found;then,the event Then,the short-term market effect before and after the announcement of the share repurchase of Wanfeng Aowei is analyzed using event analysis,and the long-term market effect after the repurchase is studied with the help of BHAR value,and several relevant financial indicators are also selected to evaluate the solvency and profitability of the company before and after the repurchase,and the impact of the share repurchase on the enterprise value is analyzed;finally,the conclusions obtained are summarized on the basis of the previous case study,and Finally,the conclusions obtained are summarized on the basis of the previous case study,and relevant suggestions are put forward to listed companies,investors and regulators in conjunction with the research findings.The following conclusions were obtained from the analysis of the buyback case of Wanfeng Aowei:(1)The share price of Wanfeng Aowei was not undervalued in the announcement.The real motive was that the controlling shareholder’s equity pledge was facing the risk of being closed out,and the share buyback was able to release some false signals to the market to enhance the share price and thus alleviate the controlling shareholder’s equity pledge risk.(2)The impact of this buyback by Wanfeng Aowei is also not as positive as expected.From the market effect point of view,although it generated positive market reaction in the short term,the long-term market reaction was very negative,which might be caused by the market recognizing the real motive of its share repurchase.From the perspective of financial effect,it has a negative impact on solvency and profitability,and also limits the development ability of the enterprise and damages the enterprise value.Therefore,listed companies should formulate reasonable share repurchase programs according to their actual situation,small and medium-sized investors should look rationally at the behavior of listed companies in conducting share repurchases,and relevant departments should also strengthen and improve the regulatory rules for share repurchases to promote the healthy development of China’s stock market.The main contribution of this paper is to be able to enrich the research on the motives and effects of share repurchases of listed companies in the context of equity pledges in China,to provide reference for listed companies to use share repurchases for capital operation,to help investors to judge the real motives of share repurchases of listed companies,and to provide reference for regulators to protect the interests of investors and maintain the good operation order of the securities market.