The Influence Of Controlling Shareholder's Pledge Of Stock Right On Firm Performance And Value

Pledge of Stock Rights,as one of the waysto raise funds,refers to the pledge behaviour that the borrower guaranteethe loans bypledging their own stock rights.The pledge of stock rights of the listed companies is a financing measure that the s hareholders raise loans from financing institution by pledging their equities to the loaners.The transparency and the nature of realizable of the stock rights turns it to the rationale for the financial institutes to provide loans.With the rapid developme nt of C hina's economic,as a new financing way,the advantages of the equity pledge attract more and more concerns.The phenomenon of obtaining financing by pledging stock rights is growing.However,along with which the related risks have been gradually e merged.In March 2016,the NEEQ listed company Feng Sheng Yang Co.,Ltd was exposed by the media,that the company's share price had fallen below the call margin line set by the agreement of the equity pledge.The controlling shareholders were trapped in multiple debt disputes,along with the break of capital chain,which increased the risk of default,and severely damaged the investors' interest.Therefore,the study of the pledge of stock rights is particularly required.The pledge of stock rights is esse ntially a kind of invisible power.Due to the nature o f power,even the stock rights have been pledged,the substantial shareholders can still keep the holding position in the company,as well as obtaining the cash.From this perspective,this paper extracted the main points of the research,that the pledge of stock rights caused the mismatch between the right of control and the right of cash flow.In the theoretical study of the past,the separation of these two rights was mainly attribute to the reasons s uch as pyramid shareholding structure,cross-shareholdings and stock with different rights.Few studies revealed that the controlling shareholder's equity pledge led to the separation of the right of control and the right of cash flow.The author classified the pledge of stock rights into two types based on the intentions o f the controlling shareholder.One was for temporary financing purpose out of goodwill.The other one was aimed at withdrawing capital with malicious purposes.In addition,the study on the influence of pledge of stock rights in NEEQ to the business environment,performance and value of the company was few.In this paper,based on the case study on Feng Sheng Yang Co.,Ltd,the author analyzed the condition of the controlling shareholder's pledge of stock rights,and how it violated the company's interests and influenced the performance and value of the company.Concluded with relevant suggestion for the risk preventionof controlling shareholder's pledge of stock rights.