Research On The Risk Of Controlling Shareholders’ Equity Pledge Of Listed Companies In China’s Film And Television Industry

BackgroundEquity pledge is a financing method that take the equity of shareholders as pledged goods,it has gained increasing acceptance in listed companies because the procedure is simple,the financing cost is relatively low and equity pledge can convert static assets into dynamic cash flow.Up to february 22,2019,3383 listed companies have used equity pledge as financing method,accounting for 94% of the companies in A-share market.(1)Film and Television Industry have the highest pledge proportion and the pledged market capitalization accounts for a large proportion of the total market value of the industry.Equity pledge is popular in this industry because most enterprises is private and implementing Asset-Light Strategy.However,the operating characteristics of the Film &TV Industry determine that it will face greater risks in the use of equity pledge financing.China’s stock market suffered a cliff-like decline in June,2015.Some companies that used equity pledge financing were forced to close their positions,transfer their control,then the situation magnified market panic and affected investors confidence.But after that,the number of listed companies that pledge ownership,and the size of the pledge did not reduced,which meant the listed companies paid insufficient attention to the risk caused by the pledge of stock right.China’s economy has under heavy downward pressure since 2018,and the impact on capital market was fully reflected in A-share index.The Shanghai Composite Index once tumbled to 2440 points.In a tight market environment,listed companies may not be able to raise funds in time to replenish warehouses and then may be forced to close their positions.The Nineteenth National Congress officially listed "guarding against and resolving major risks" as one of the three major tasks,and "risk prevention" replaces "steady growth" as the main tone of economic work.In the beginning of 2019,General Secretary Xi Jinping emphasized once again that we should improve the ability of risk prevention and control,consummate the risk prevention and control mechanism,establish and strengthen risk research and judgment mechanism,risk assessment mechanism,coordination mechanism and responsibility mechanism of risk prevention and control.Against the macro background of de-leveraging to prevent and defuse major risks,holding shareholders of listed companies in Film&TV industry still kept high proportion of equity pledge.In June,2018,the industry was constantly bursting with negative news,which made the market value shrunk sharply,and the risk of high proportion equity pledge company begun to appear.In summary,whether the macroeconomic environment of our country at the present stage or the current situation and the operating characteristics of Film&TV industry,all of them require that the listed companies in Film&TV industry should pay more attention to the risk of equity pledge.PurposeOne of the purposes of this study is to set up a risk analysis framework for controlling shareholders’ equity pledge based on the operating characteristics and development characteristics of the Film&TV industry,including risk identification,analysis and evaluation,response and prevention and control.The second purpose of this paper is to quantify the three risks of equity pledge in Film&TV industry through financial analysis and quantitative analysis.On the basis of analyzing and evaluating the risks,this paper puts forward corresponding suggestions,which can be used for reference by other listed companies in Film&TV industry.Main context and viewThe research content of this paper can be divided into the following parts:The first chapter is an introduction,including research background,research significance,research ideas and contents,research methods and the main contributions and shortcomings of this paper.The second chapter is a literature review,including defining the relevant concepts involved in the title of this paper,combing the literature on equity pledge at home and abroad,and dividing the literature into four parts: equity pledge motivation,economic consequences,risk causes and risk response.This paper expounds the existing research results of equity pledge,the similarities and differences between Chinese and foreign scholars’ view,and the current research direction.The third chapter is the theoretical analysis of the risk of controlling shareholders’ equity pledge of listed companies in China’s Film&TV industry.The first section of this chapter elaborates the theoretical basis,including principal-agent theory,capital structure theory,information asymmetry theory and signal transmission theory.Equity pledge may aggravate agency problems,affect capital structure,and convey information to the market.If investors receive negative signals,they will sell stocks and trigger risks.The second section of this chapter establishes the risk analysis framework of controlling shareholders’ equity pledge of listed companies in Film&TV industry on the basis of theory,including the identification,analysis and evaluation,response and prevention of pledge risk.The common risks of equity pledge of listed companies in Film&TV industry are credit risk,change of control right risk and market risk.This paper adopts different quantitative analysis methods for these three risks,and gives suggestions on how to deal with them and how to prevent and control them.Section three is an analysis of the status quo of equity pledge of controlling shareholders of listed companies in Film&TV industry.This section describes the three characteristics of the pledge market value as a significant proportion of the total market value,the high proportion of pledge and the high amount of additional pledge.It is urgent to highlight the risk of equity pledge in the Film&TV industry.Chapter four is a case study.Setting forth the background of the case of share pledge of Huayi Brothers’ controlling shareholder,identifying the three risks of Huayi Brothers’ equity pledge under the guidance of chapter three,and quantifying three risks by financial index analysis,Z-Score model and Va R model respectively.The results show that after the pledge of controlling shareholders’ equity,Huayi Brothers’ financial situation deteriorates,Z value is close to the bankruptcy area,the pledge rate calculated by Va R decreases continuously,and the market risk increases.Then analyzing and evaluating the risks on the basis of results.At last,analyzing the impact on stakeholders.The fifth chapter is the countermeasures and suggestions.On the basis of the risk analysis framework in the third chapter,the corresponding countermeasures and suggestions are put forward for the three common risks in the light of the specific situation of the risks in the case.Chapter six is the conclusion and prospect.Main ContributionsThe main contributions of this study:(1).At present,the research on equity pledge mainly focuses on the impact and risk of equity pledge from the perspective of corporate governance,mostly on the whole A-share market,but less on the risk of equity pledge in a certain industry.This paper chooses the Film&TV industry for research,one of the reasons is that the Film&TV industry is the industry with the largest share of the market value of equity pledge,and the majority of controlling shareholders are high proportion of equity pledge,which has a high risk.The second reason is that under the background of the third consumption structure upgrading in China,in order to satisfy the entertainment consumption demand of the public and enrich the people’s spiritual life,we need to pay attention to the healthy development of the Film&TV industry.Therefore,it has certain pertinence and practical significance to study the equity pledge risk of listed companies in Film&TV industry.Moreover,the case chosen in this paper is both private enterprises and light assets enterprises.These enterprises are facing the problem of financing.How to make good use of equity pledge financing and control the risk is of great significance for these enterprises.(2).In the present case study of equity pledge risk,it is generally selected that there have been cases of warehouse explosion and controlling shareholder control transfer.Starting with the separation of two rights,these papers focuse on the analysis of controlling shareholder’s "tunneling" behavior towards listed companies.Although there is no explosion crisis,The case selected in this paper has not yet appeared explosion crisis,but the high proportion of pledge risk has been initially revealed.This paper points out that the motivation of controlling shareholders’ equity pledge is not necessarily harmful to the company,but the controlling shareholders’ equity pledge from a good starting point will still face great risks.It also needs to be paid attention to the risk,take precautionary measures in advance,and improve the information disclosure system and supervision mechanism.(3).Most of the policy recommendations start with restricting the proportion,scale and pledge rate of equity pledge at present.This paper points out that we can refer to the policy implemented in Taiwan,starting from the restriction of control rights,restrain the motive of controlling shareholders’ high proportion pledge,and warn them to pay attention to risks.