The Equity Pledge Of The Controlling Shareholder Impacts On The Minority Shareholders’ Benefit

Equity pledge has become the main way of financing for listed companies in China.As of November 2019,3106 A-share listed companies have pledged their equity,with a total market value of 4396723 million yuan.Because of its advantages:simple approval process,shareholders do not lose control,activate the book value of equity to realize the secondary circulation of capital,it is favored by shareholders,especially the controlling shareholders.In recent years,due to the large fluctuation of the stock market,the listed companies that adopt equity pledge financing are frequently forced to close their positions due to the sharp fall of the stock price.Such incidents reveal that there are great hidden dangers in equity pledge,and the research on them is more worthy of attention.The share pledge will promote the separation of control right and cash flow right of shareholders.For the controlling shareholders,the degree of separation of the two rights increases with the increasing share pledge proportion,which will cause the principal-agent problem between them and the minority shareholders,and make the share pledge behavior change into a tool of usurping the interests of the minority shareholders.At the same time,with the decrease of tunneling cost,the controlling shareholders will use the control right to control the operation decision of the listed company,transfer the high-quality assets of the company and transfer the benefits for themselves.Therefore,it is of great significance to study the impact of stock pledge of controlling shareholders on the minority shareholders.In recent years,under the macro background of "deleveraging",China’s social credit financing is strictly put in,the stock market fluctuates violently,and the stock pledge explosion continues to happen.Geo-Jade Petroleum,for example,will be forced to close its position due to the stock pledge explosion in 2017,and the whole value of the minority shareholders and the company will be seriously damaged.This paper chooses it as a case,analyzes the impact of the equity pledge of the controlling shareholders of the listed company on the minority shareholders,and puts forward the corresponding solutions.This paper collects,sorts out and sums up the domestic and foreign literature on the research of controlling shareholders’ equity pledge motivation,behavior consequences and interest encroachment,and summarizes the impact mechanism of controlling shareholders’ equity pledge on the minority shareholders based on the relevant theoretical basis,and then uses case study method to study the behavior and impact of Geo-Jade Petroleum controlling shareholders’ equity pledge.In the analysis process,this paper starts with the process and characteristics of the controlling shareholders’ equity pledge,analyzes the motivation of the pledge behavior and the tunnel digging behavior after the pledge,analyzes the negative impact on the minority shareholders by combining the short-term market reaction of the listed company and the change of the company value,and probes into the existing problems of the equity pledge behavior.Finally,combined with the case enlightenment,the paper puts forward countermeasures and suggestions on how to prevent the interests of the minority shareholders from being encroached by the controlling shareholders’ equity pledge,which is of practical significance to enhance the risk prevention awareness of the majority of investors.In addition,it also provides a reference for the study of principal-agent problems caused by equity pledge.