The Case Study Of Controlling Shareholders’ Equity Pledge Of Chaori Solar

In the case of high concentration of ownership, the focus of corporate governance research hastransitioned from the conflict of agency between shareholders and management to the conflict of interestbetween controlling shareholders and minority shareholders. Controlling shareholders can gain personalbenefits by taking control, infringing on company’s interests and hurting minority shareholders. In China,equity pledge of controlling shareholder in listed companies is very popular and the proportion of equitypledge is very high. Equity pledge as a way of equity financing, the transformation of equity assets of staticto dynamic assets, increase the enterprise’s financing opportunities.Equity pledge of controlling shareholderindicates there is a strong demand for funds motivation. The controlling shareholders can gain access tofunds by equity pledge, in the meantime they can also transfer the risk of fluctuations in the equity value tothe banks, which will reduce the cost of hurting minority shareholders, thus deepening the problem betweencontrolling shareholders and minority shareholders. Therefore, the research on equity pledge of controllingshareholder has a strong theoretical and practical significance.This paper focus on the case studies on the effect of equity pledge behavior of the controllingshareholders of Chaori Solar. First, the paper reviews the concept of equity pledge based on theprincipal-agent theory and control theory. Second, it summarizes the development status of equity pledge inChina’s Listed Companies. The paper conducted a preliminary analysis on the economic consequences ofequity pledge. And it believes that there are three main reasons for the motivation of controllingshareholders’ equity pledge, which are financing, investment and personal financial needs. This couldadversely affect the controlling shareholders themselves, listed companies, and stakeholders. By thecontrolling shareholder of the Chaori using equity pledge emptied the three steps of listed companies,namely, a large number of financing, transfer of assets, to give up equity analysis, and provide relevantevidences to prove that there is a transfer assets, emptied the company’s action. Then using financialindicators,Tobin Q to measure the value of the company, the equity pledge have serious economicconsequences for the company to be proved.Case study results show that the controlling shareholder equity pledge behavior leads to the separationof its control rights and cash flow rights, which led to the controlling shareholders to have an incentive tograb interests, and ultimately implement behaviors that empty the company. This tunneling behavior willultimately infringe on the interests of stakeholders, so that the company’s financial situation will deteriorate,adversely affecting the value of the company.In view of the case study results, the hope can through thecompany’s internal governance, and strengthen the external supervision to guard against the controllingshareholder hollowed listed companies using the equity pledge.