Analysis On The Motivation And Consequences Of The Pledge Of Xilinmen's Controlling Shareholders' Equity

The operation process of equity pledge financing is simple and it does not need the approval of the regulatory level.What's more,the pledged shares will not dilute the ownership of the company,so it is favored by the controlling shareholders of listed companies in China.However,with the increasing number of companies carrying high proportion of equity pledge in China,the risks are increasingly apparent.In 2018,the China Securities Regulatory Commission issued new regulations to strictly limit the scope and proportion of equity pledge transactions,which reminded companies to pay attention to the risks of equity pledges and required a reduction in the equity pledge ratio.However,as of July 31,2020,there are still 2,866 listed companies in Chinese Ashares that have pledged equity.The cumulative number of pledges is 31,400.The total number of pledged shares is 531.1 billion,and the total value of pledged shares is 4.95 trillion yuan.The total amount of equity pledge is still high.The current theoretical research on controlling shareholder's equity pledge is mainly based on large samples.In order to deepen the issue of equity pledge into the practical field,this paper selects Xilinmen Furniture Co.,Ltd.controlling shareholder's equity pledge behavior case to analyze the motivation and consequences of its equity pledge.Within seven years of Xilinmen's listing,the controlling shareholder's equity pledge ratio remained at 100% for a long time.In 2019,there was also a wave of control transfer.It is a typical high pledge enterprise,which is representative to some extent.First,through the analysis of Xilinmen's financial reports and announcements of listed companies,the article found that Huayi Investment pledged equity mainly for the needs of Xilinmen's operation development,the need to increase its own holdings and strengthen control,and its own investment needs.Also,it explained the flow direction of equity pledge funds.A high proportion of equity pledges brought many negative consequences to the enterprise,although it raised a lot of funds,.Secondly,this article uses a variety of methods to analyze the consequences of a high proportion of pledges on Xilinmen and draws the following analysis conclusions: First,Xilinmen equity pledge will bring about a short-term decline in corporate stock prices.The higher the pledge ratio is,the more significant its negative effects will be.Second,by analyzing the separation of control right and cash flow right after equity pledge,the distribution of cash dividends,investment strategies and the use efficiency of pledged funds,it is concluded that equity pledge will lead to a decline of corporate value.Third,this article focuses on exploring the relationship between the deterioration of Xilinmen's financing constraints and equity pledges.Stata software is used to establish a KZ index model to measure the degree of corporate financing constraints.Through longitudinal and horizontal comparative analysis,it is concluded that high proportion of pledge aggravates the degree of corporate financing constraints.Fourth,this article also analyzes the crisis faced by enterprises: it focuses on the occurrence and resolution of the crisis of Xilinmen control transfer,analyzes the role of government bailout funds in this process,and suggests the risks that exist in the future.At the same time,it also analyzes the bankruptcy risks faced by the enterprise.Finally,based on the above discussion,this paper makes a summary,suggests stakeholders to clearly identify the motivation of controlling shareholders' equity pledge and puts forward corresponding suggestions on how to prevent the consequences of equity pledge,such as how to reduce the risk brought by high equity pledge in the future and improve internal supervision;Under the high pledge ratio,restricting the controlling shareholder's control over the enterprise's major issues;Focusing on supervision of recurring pledges and supplementary pledges,Strengthening of high pledge enterprise risk identification and assistance plan system construction.