Research On The Effect Of Local Government Rescuing The Market To Alleviate The Risk Of Equity Pledge

The scale and quantity of equity pledge in China have increased rapidly in recent years,and the A-share market is almost "free from pressure".Chinese international environment was relatively harsh,and "Sino-US trade friction" led to the decline of China’s A-share market more indirectly,which led to an increase in the risk of equity pledge.These have seriously affected the healthy development of Chinese real economy and capital market in 2018.To this end,local governments have issued relevant policies since the fourth quarter of 2018,set up relief funds,and injected funds into some pledge enterprises to mitigate pledge risks.Therefore,this article is of great significance to the research on the local government’s rescue of the city.This article starts with the background of this rescue,reads relevant literature,defines the concept of equity pledge risk and government rescue on the basis of existing research,and elaborates its current situation.Based on the knowledge learned and relevant research,this paper theoretically analyzes the effect and mechanism of the local government’s rescue behavior: to ease the liquidation risk of equity pledge by providing additional liquidity for the market and boosting investor sentiment.However,most studies also show that rescuing the market will also bring negative effects that are not conducive to the long-term operation of the market,such as reducing the pricing efficiency of stocks and increasing the transaction costs of speculators.In order to test whether the above theory is true or not,this paper makes an empirical analysis on the effect of local government setting up rescue fund to rescue the city through score tendency matching-double difference model(PSM-DID).Taking the fourth quarter of 2018 as the event occurrence period,the former is set as the pre-event period and the latter is set as the post-event period in 2019.The rescued enterprises are set as the treatment group and the non-rescued enterprises are set as the experimental group.Through the score tendency matching method,1801 shares of superior companies are selected as the research targets.The empirical results show that:(1)local government rescues the market can effectively alleviate the liquidation risk of equity pledge;(2)Local government rescues the market through a mechanism to increase liquidity for the market and boost investor sentiment to mitigate pledge risks;(3)The localgovernment will bring negative effects: rescuing the market will reduce stock specificity,reduce pricing efficiency and increase the transaction cost of investors.Finally,this paper summarizes the results of the government’s rescue and puts forward suggestions on the negative effects from four aspects: first,strengthen the legal and regulatory prevention mechanism;The second is to exit in an orderly way at an appropriate time to avoid the spread of negative effects.Third,improve information disclosure and strengthen the disclosure system;The fourth is to improve the quality of investors,increase the cultivation of investment ideas for small and medium-sized investors,increase the entry threshold,and avoid herd behavior aggravating market fluctuations.The innovation of this paper is mainly reflected in the following aspects: First,the research in this paper can enrich the research on the topic of local government rescue in the fourth quarter of 2018;Secondly,there are few researches on how to mitigate the risk of pledge liquidation in China.Therefore,this paper analyzes the effect,impact mechanism and negative impact of mitigation of liquidation risk,which enriches the academic research in this field.