Analysis On The Motivation And Economic Consequences Of Controlling Shareholder's Equity Pledge

In recent years,with the rapid development of China's economy and the improvement of capital market,more and more financing methods have emerged.As a new way of financing,equity pledge has also attracted the attention of various investors in the society.Because this financing method has plenty of advantages,such as relatively low financing cost,quickly available cash flow and so on,many controlling shareholders prefer to use this method to obtain funds.However,based on the analysis of the equity pledge of Listed Companies in Chinese A share market from 2013 to 2018,this paper finds that this kind of financing method separates the controlling shareholder's control right and cash flow right,which may give birth to plenty of bad motivations and then affect the long-term development of the enterprise and the interests of other stakeholders and partners.Therefore,based on principal-agent theory,control right theory and signal transmission theory,this paper analyses the different motivations and the corresponding economic consequences when those listed company's controlling shareholders pledge their equity,and explores how to avoid controlling shareholders using this financing method to make private profits,which is of significant research value.This paper selects Oceanwide Holdings,the enterprise with the highest equity pledge ratio in the real estate industry,as the subject of the case study.First of all,through combing the announcements of Oceanwide Holdings,this paper finds that its controlling shareholder Oceanwide Group pledged equity for 93 times from 2013 to 2018.At the same time,the proportion of pledge is very high and even reached 99.56%on December 31,2018,which means Oceanwide Group almost pledged all of its equity.Next,based on the financing environment of the real estate industry and Oceanwide Holdings 's own financial and operating conditions,this paper analyzes the motivation of Oceanwide Group's high proportion of equity pledge,and studies the economic consequences of this behavior by using financial indicator method,Tobin Q method and event research method.Finally,this paper draws a conclusion that the long-term,high-frequency and high-proportion pledge behavior further separated the control right and cash flow right of Oceanwide Group,which has made negative effect on the financial situation,operating policy,market value,risk-taking level and other shareholders' interests of Oceanwide Holdings.Therefore,this paper suggests that listed companies should strengthen the quality of information disclosure,meanwhile those regulators need to take more measures to supervise and control the controlling shareholders' equity pledge.At the same time,other shareholders,suppliers,investors and other interested parties of listed company should pay more attention to risks caused by equity pledge and enhance their awareness of risk early warning.