Research On The Pledging Of Stock Rights By Large Shareholders And Inefficient Investment

With the rapid development of capital market,the number of large shareholders' stock rights pledge has increased.According to the data from China Securities Depository and Clearing Corporation Limited(CSDCC),3455 companies have involved in pledge of stock rights,2656 companies' pledge ratio was more than 50%.On the other hand,this rapid development also has a negative influence on investment efficiency of the enterprises and makes their efficiency diversified.The reason is that shareholder intervene in companies' investment decisions unreasonably,which causes the level of inefficient investment to increase.Many papers researched investment behavior from the perspective of static equity structure and followed the research path from equity structure to corporate governance to non-efficiency investment.Few papers researched them from the perspective of dynamic equity structure such as the relation between the large shareholders' stock rights pledge and inefficient investment.Therefore,it is necessary to research the relation between large shareholders' stock rights pledge and inefficient investment and study the possible results under different ownership property and pledge characters.This paper uses a sample of listed non-financial firms in Shanghai and Shenzhen Stock Exchanges from 2007-2016,studies the association between large shareholders' stock rights pledge and inefficient investment based on the principal-agent theory,information asymmetry theory and financing constraint theory.If large shareholders think companies have potential to develop,they will become conservative to avoid risk,which leads to insufficient investment.If large shareholders want to discard companies,they will adopt aggressive investment strategy,which leads to excessive investment.This paper also researches the relationship between large shareholders' stock rights pledge and inefficient investment under different property right,state-owned enterprise's political advantage,good financing environment and government supervision will weaken this relationship.Besides,this paper researches the pledge term and continuous pledge's influence on the relationship between large shareholders' stock rights pledge and inefficient investment.Because of the existence of financing institution,they weaken this relationship.This paper finally draws four conclusions.The first is that the large shareholders' stock rights pledge has a positive association with the inefficient investment.The second is that state-holding listed companies have lower inefficient investment levels than others after their large shareholders pledge.The third is that continuous pledge will reduce the positive relation.The fourth is that pledge term will also reduce the positive relation.There are two main innovations in this paper.In the first place,this paper researches the effect of large shareholders' behavior on inefficient investment from the perspective of dynamic equity structure and follow the path from large shareholder's behavior to behavioral mechanism to non-efficiency investment.The second is that this paper researches the economic consequences of the pledge of stock rights by large shareholders in the view of inefficient investment and compare results under different ownership property and pledge characters.