On Tunneling Behaviors Under The High Proportion Of Equity Pledge Of Controlling Shareholders

At present,equity pledge has become one of the important financing channels for controlling shareholders.When the controlling shareholder of a listed company conducts equity pledge,On the one hand,he can use static book equity to obtain financing,increase asset liquidity,and convert “economic stock” into “economic energy”;On the other hand,the voting rights corresponding to his pledged equity are not restricted,thereby he is able to maintain his control after the equity pledge.Studies have shown that the controlling shareholder’s equity pledge will strengthen his motivation to encroach on the interests of listed companies and harm the interests of small and medium shareholders due to the increased separation of his cash flow rights and control rights.In addition,it is not uncommon for the controlling shareholders under the high proportion of equity pledge to implement tunneling behaviors on the listed comopanies and damage the interests of small and medium shareholders in the securities market.It can be seen that preventing the controlling shareholders from implementing tunneling behaviors on listed companies under the high proportion of equity pledge,improving the protection mechanism of minority shareholders’ interests and maintaining the healthy development of the securities market have become the focus of current theoretical and practical circles.This paper adopts the case study method,selecting Protruly as the case study object to study the tunneling behaviors of the controlling shareholders under the high proportion of equity pledge.The body content has five parts.The first part introduces the concepts of equity pledge,cash flow rights and control rights,and tunneling behaviors,as well as the theoretical basis related to the implementation of tunneling behaviors under the controlling shareholders’ equity pledge(including information asymmetry theory,principal-agent theory and control theory).The second part includes the company profile of Protruly and the equity pledge of its controlling shareholder.The third part analyzes the reasons why the controlling shareholder’s high proportion of equity pledge aggravates the tunneling excavation and the tunneling behaviors of the controlling shareholder of the case company Protruly under the high proportion of equity pledge.The fourth part analyzes the economic consequences of the implementation of tunneling behaviors by the controlling shareholder from three aspects: the impact on the financial performance of Protruly,the impact on the interests of small and medium shareholders and the impact on the securities market.The fifth part points out that the smooth implementation of the controlling shareholder’s tunneling behaviors indicates that there are defects at the governance level,which include defective corporate governance structure,lack of internal control and imperfect external regulatory system.This part finally proposes policy recommendations correspondingly to improve corporate governance.Through the case study of Protruly,this paper draws the following conclusions: First,the controlling shareholders would strengthen their motives for implementing the tunneling behaviors to the listed company under the high proportion of equity pledge,and the second type of principal-agent problems will be aggravated.Second,the high proportion of equity pledge of controlling shareholders will have a negative impact on the listed companies.Third,the smooth implementation of the controlling shareholders’ tunneling behaviors is due to the existence of governance defects inside and outside the listed company.The innovation of this paper is to raise the point that the reasons for the controlling shareholder’s intensifying the tunneling behaviors under the high proportion of equity pledge include the controlling shareholders’ own capital demands,the increased separation of cash flow rights and control rights,and the reduction of tunneling costs,and the point that the disclosure and supervision of equity pledge information is one of the important measures to control the controlling shareholders’ tunneling behaviors.