Pledged Fund Flow Direction, Equity Pledge And Corporate Performance

Equity pledge financing activity is very common in China’s capital market, the behavior of equity pledge occurs frequently, especially the behavior of the controlling shareholder’s equity pledge, the pledge ratio is very high. As a new financing way, in recent years, equity pledge has shown such strong growth trend in China’s capital market, this phenomenon worthy of attention.This paper, through to review the controlling shareholder’s equity pledge announcement of listed companies, found that equity pledged fund flow direction is differrent, can be divided into four categories:be invested to the equity pledged companies, be invested to the controlling shareholder or a third-party, be invested to both and unknown flow direction. Pledged fund direction is different, is there a difference in the controlling shareholder’s equity pledge behavior?Equity pledge can make the controlling shareholder to transfer the static equity into dynamic cash flow, realized the capital circuation again, solved a shortage of fund that the listed companies and the controlling shareholder or a third-party. However, while access to equity pledged fund, equity pledge risk comes, and increases with the increase of the pledge ratio, this risk mainly refer to the risk of the transfer of control that brought by financial pressure such as the equity value of collateral fell and debt paying ability dropped. Will the controlling shareholder’s equity pledge behavior such risks and benefits of coexistence affect performance of the equity pledged companies? Pledged fund flow direction is different, is there a difference in the impact on performance of the equity pledged companies?This paper, with China’s A-share main board listed company’s controlling shareholder’s equity pledge announcement for the study, with2007to2012for the study period, use empirical research method to analyze the behavior of controlling shareholder’s equity pledge from the perspective of equity pledged fund direction, in order to reveal the relationship between and among controlling shareholder’s equity pledge and pledged fund direction and performance of the equity pledged companies, and put forward the corresponding policy recommendations according to the research conclusion. Therefore, to understand and standardize the controlling shareholder’s equity pledge has great theoretical and practical significance.The empirical study results show that:(1) pledged fund flow direction is different, equity pledge ratio is differenct, When the controlling shareholders invest the equity pledged fund to themselves or a third-party, pledged ratio is higher than the fund flowing to the pledged listed companies, namely the controlling shareholders tend to provide equity pledge guarantees for themselves or a third-party;(2) equity pledged ratio is negatively related to corporate performance, the higher the equity pledged ratio, the lower performance of the equity pledged companies, equity pledge has a negative impact on corporate performance;(3) When the controlling shareholders invest the equity pledged funds to themselves or a third-party, the corporate performance is significantly lower than the funds flowing to the pledged listed companies.