The Impact Of Controlling Shareholder’s Equity Pledge On Company Value

With the development of socialist market economy,the scale of business operations is constantly expanding,and the demand for funds is also increasing.As a new financing method,equity pledge is favored by listed companies due to its strong liquidity,simple and quick approval process,and does not change the control of controlling shareholders.As of the end of 2020,the proportion of equity pledges in my country’s A-share listed companies has reached 5.66%,the number of pledge companies has reached 2,632,and the total market value has reached 4.32 trillion yuan.It can be seen that equity pledge is a financing method in China’s capital market.Has been quite large.However,it is worth noting that a high proportion and high frequency of equity pledges will also increase the financial risk of the company.If the stock price drops to the liquidation line,the company’s capital flow is insufficient,which will bring the risk of control transfer and affect the normal production and operation of the company.In addition,equity pledge will bring about the separation of corporate control and cash flow rights,and increase the malicious motivation of controlling shareholders to hollow out listed companies.Whether it is the risk of the transfer of control rights of the enterprise or the moral hazard of the controlling shareholder’s encroachment on the interests,it will have a negative impact on the value of the company.Taking Huayi Brothers as an example,this article explores the impact of equity pledge behavior on the value of the company through the analysis of the motivation of Huayi Brothers’ high frequency and high proportion of equity pledges,hoping to arouse the attention of all parties in the society on equity pledges and reduce the blindness of investors The risk of investment,standardize the equity pledge behavior of enterprises,and promote the steady development of the capital market.On the basis of consulting a large number of documents,this article combs and summarizes the existing research literature on the motivations,risks and impacts of equity pledges on the value of the company.At the same time,it also clarifies the definition of the related concepts of equity pledges.Symmetry theory,signal transmission theory and control desire theory are explained.In the case study part,first introduces the equity structure and equity pledge of Huayi Brothers,and then analyzes the essential motivations of Huayi Brothers equity pledge including good faith and malicious motivation.The study found that Huayi Brothers’ early equity pledge was indeed for increasing The company’s cash flow meets the needs of the company’s strategic sector expansion.However,with the increase in the percentage and frequency of pledges,the degree of separation between corporate control and cash flow rights has continued to deepen.Huayi Brothers has infringed on the interests of small and medium shareholders through equity pledges.The motivation of the empty company is getting stronger and stronger,and the controlling shareholder’s equity pledge to raise funds is still to satisfy the personal high-consumption hobby of collecting.Finally,this article analyzes the specific impact of equity pledge on company value from the specific calculation analysis of short-term market reaction,long-term financial performance and corporate value.From the short-term market reaction of equity pledges,it is found that as long as companies have equity pledges,the market will react negatively and as the frequency and proportion of pledges increase,the negative reactions of the market will become more and more intense.From the long-term financial performance,it is found that a reasonable equity pledge will indeed improve the business performance of an enterprise,but excessive equity pledge will only increase the financial burden of the enterprise,resulting in insolvency and uncertain development prospects.The calculation of Tobin Q and EVA to the value of the enterprise has also confirmed that a high proportion and high frequency of equity pledges will indeed have a negative impact on the value of the enterprise.Based on the above analysis,this article puts forward the following suggestions for equity pledge: First,it is necessary to improve the information disclosure system and increase information disclosure;second,to improve the laws and regulations related to equity pledge;third,for investors themselves,they must invest rationally.The company’s stocks invested in have a comprehensive and comprehensive understanding,and rational investment judgments are made based on the major business decisions of the company,the frequency and scale of equity pledges;fourth,the company itself must strengthen internal governance,improve internal control systems,and exercise control over the power of controlling shareholders.Supervision and checks and balances.