The Impact Of Equity Pledge On The Change Of Stock Price Of Listed Companies

Equity pledge is a spontaneous financing act of shareholders of listed companies.Intuitively speaking,there should be no necessary connection with the company's stock price changes.However,in most cases,the pledged party is the major shareholder,controlling shareholder,and director of the listed company,whom are important in the listed company.Once their pledge transaction is forced to liquidate,the company's control will be transferred,which will seriously affect the stability of the stock price and the company's operations.In recent years,according to the development of the entire capital market,due to the deterioration of the international economic environment and the tightening of the domestic financing environment,listed companies,especially small and medium-sized companies,have the pressure of financing difficulties and expensive financing.In this context,the emerging financing instrument of equity pledge has the characteristics of not changing the control of the major shareholder to the company and realizing some or all of the cash flow rights in advance.Moreover,its trading method is convenient and the financing cost is low.Therefore,equity pledge has once become a financing tool sought after by shareholders of listed companies in China.According to China Securities Depository and Clearing Co.,Ltd.(hereinafter referred to as Zhongdeng Company),in recent years,the total size of China's A-share market pledge has continued to rise.The total market value of pledge is from 4.93 trillion in 2015 to 5 trillion in September 2016 and then 6 trillion in September 2017.As of the end of 2017,the total market value of A shares pledge was 6.15 trillion,and the total pledge rate reached 10.86%.There are 3,462 listed companies in A shares,and the number of pledge companies is 3,432,accounting for 99.13%.Almost all stocks in the A-share market are pledged.As the scale of equity pledges rises,the risks posed by pledges gradually emerge.Until the arrival of the stock market disaster in 2018,the risk of equity pledge broke out.The continuous decline in the A-share market has become a spiral of liquidity in which ‘stocks fall,pledges are rushing,continue to fall,and continue to burst'.The large amount of equity pledge of listed companies once became the biggest risk factor for the possibility of detonating landmines.Based on the above situation,it is particularly important to discuss the impact of equity pledge on the stock price changes of listed companies.Based on the characteristics of equity pledge,combined with the study of relevant theories,this paper focuses on the impact of equity pledge on the company's stock price changes.Moreover,this paper will use the equity pledge data of the GEM listed companies to conduct an empirical test on the research content.First of all,this paper introduces the concept and characteristics of equity pledge and the development status of China.It shows the prevalence of equity pledge behavior in China's listed companies and the practical significance of this study.Then,the paper analyzes and summarizes the domestic and foreign literature on equity pledge issues from three aspects which are the background,motivation and mechanism of action on the value of the company's equity pledge.It is concluded that the academic community has verified that the equity pledge does have an impact on the company's value.However,scholars did not reach an agreement on the direction of influence and the mechanism of action.Then,this paper elaborates on the relevant theory of equity pledge.Based on these theories,the paper analyzes the mechanism of the impact of equity pledge on the company's stock price.Finally,proposing three important assumptions of this paper.First,the equity pledge behavior will have a negative impact on the stock price changes of listed companies.And the higher the pledge rate,the more the stock price falls.Second,compared with other shareholders,the controlling shareholder or the actual controller's equity pledge behavior has a greater negative impact on stock price movements.Third,compared with the comprehensive effect of multiple equity pledge behaviors,each company's equity pledge occurs for the first time,and only occurs once during the window period.The pledge ratio is still negatively correlated with the stock price movement.Then,selecting all the equity pledge data of China's GEM listed companies from 2010 to 2017 as the research sample,and using the simple OLS regression model to empirically test the three important hypotheses of this paper and drawing the corresponding empirical conclusions.The results show that,firstly,from the overall perspective of the GEM market,the shareholding pledge ratio is negatively correlated with the stock price change at the 1% significance level,and the share price falls more as the pledge ratio increases.Second,compared with other shareholders,the negative correlation between the equity pledge behavior of the controlling shareholder or actual controller of the listed company and the stock price change is more significant.Third,it is interesting to note that according to the test of Hypothesis 3,the negative correlation between the single and first equity pledge and stock price changes is not completely significant.On the one hand,conclusion 3 verifies the mechanism of the signal transmission effect.On the other hand,it may be due to the fact that when the sample of the first and single equity pledge is selected according to the conditions,the sample size of the sample is too small,and the regression has a bias.Finally,based on the empirical results of this paper,making several suggestions to the regulatory authorities,listed companies and investors,in order to make some contributions to improve the mitigation of equity pledge risks and promote the steady development of equity pledge financing transactions.