The Influence Of Controlling Shareholders Pledge Of Stock On Operation Performance

Under the highly concentrated ownership, the core corporate governance is not between the shareholders and the managers,but between the controlling shareholders and the minority shareholders. The controlling shareholders can get private interest by controlling rights which hurt the interest of companies and the minority shareholders.It is common for controlling shareholders to pledge their stocks in Chinese listed firms. According to the database, about one-third of listed companies whose controlling shareholders pledge their stocks. Stock pledge hints that the controlling shareholders have a requirement for cash. The controlling shareholders obtain funds and transfer out their risk of the unsteady stock price to the bank, which will reduce the controlling shareholders’cost and intensify the agency problems between the controlling shareholders and the minority shareholders. Therefore, it is significant and valuable for theory and practice to study the stock pledge.Based on the stock pledge for research object, this paper describes the reasons, uses and the risks of stock pledge. Then, we analyze the cost and benefit before and after stock pledge and find that the pledge will increase the controlling shareholders’benefits and reduce the cost under certain conditions to tunnel the firm, which lead to serious fund occupation and do harm to operation performance. Then, we use the methods of empirical study, and the data includes 2008 and 2009 two years. The empirical results show that: there is a negative correlation between stock ownership and fund occupation, and there is a positive correlation between stock ownership and operation performance, which present supportive; there is a positive relation between pledged shares and fund occupation, and there is a negative relation between pledged shares and operation performance, which present occupation; if we remove the pledged shares from ownership and use net ownership as voting rights, there is a positive relation between net ownership and operation performance.