Shares Pledge Of Controlling Shareholder、Earnings Management And Corporate Charitable Donation Decision

In recent years,there are a large number of controlling shareholder’s equity pledge in the capital market.Although equity pledge can bring capital to listed companies and solve the problem of controlling shareholder’s capital shortage,there are also many potential risks in equity pledge.Once the company’s share price fell rapidly,controlling shareholder is likely to face the risk of losing control rights,which will have adverse impact on the daily business activities of listed companies,and even put the company into bankruptcy.Charitable donation can improve the company’s reputation and establish a good image for the company,and can alleviate the risk of losing control rights.However,charitable donation will make the company’s capital flow out,so the controlling shareholder will weigh the cost-benefit to choose the timing of charitable donation and consider other alternative methods.Earnings management is also one of the means to alleviate the risk of losing control rights.Compared with charitable donation,the accrual earnings management will not change the company’s daily business activities,and will not affect the capital flow.The expenses manipulations will bring funds to the company.When the equity pledge rate is high,will controlling shareholders replace charitable donations with expenses manipulations due to capital pressure? Therefore,this paper attempts to explore the impact of controlling shareholder’s equity pledge on corporate charitable donation,and add earnings management factors into the research framework.From the perspective of alleviating the risk of control rights,this paper explores the coexistence and substitution of different means.First of all,based on the principal-agent theory,the information asymmetry theory and the theory of strategic philanthropy,this article analyzes the connection between charitable donation and stock pledge.Secondly,this article takes A-share corporations in China from 2008 to 2018 as examples,performs correlation analysis and multiple regression analysis on the basis of descriptive statistics,and examines the relationship between controlling shareholder’s equity pledge and charitable donation.Then,this paper studies the relationship between equity pledge and earnings management.Under different equity pledge rate,there is coexistence or substitution relationship between charitable donation and different earnings management methods.The controlling shareholder will make strategic choices to alleviate the risk of losing control rights.Finally,based on the theoretical results and empirical evidence,this article proposes the research conclusions and some suggestions.The results show that:(1)There is an inverted U-shape relationship between the stock pledge rate and company charitable donation,and the controlling shareholder will choose when to take charitable donation based on the cost-benefit principle.When the equity pledge rate is low,the controlling shareholder will increase the level of charitable donation.When the equity pledge rate is high,the controlling shareholder will reduce the level of charitable donation;(2)Based on the “inflection point” of inverted U-shape relationship,this paper divides the equity pledge companies into high and low groups,and further studies the strategic choice of charitable donation and earnings management.It is found that when the equity pledge rate is low,the controlling shareholder will improve the level of accrual earnings management to uphold share price.Considering the future development of the company,the controlling shareholder will reduce the level of real earnings management.When the equity pledge rate is high,the company will increase the level of accrual earnings management to uphold share price.The company will not adopt the accrual earnings management which is easy to be found,but adopt the real earnings management.The specific performance is to improve the expenses manipulations level which can increase the cash flow and reduce the sales manipulations level which can reduce the cash flow.The main contributions of this paper are as follows:(1)This study finds that there is an inverted U-shape relationship between the controlling shareholder’s equity pledge and charitable donation,which enriches the research on the relationship between equity pledge and charitable donation;(2)Based on the cost-benefit perspective,the study finds that when the company is faced with the risk of losing control rights,the controlling shareholder of different equity pledge rate will choose different earnings management methods strategically.There are coexistence or substitution relationships among charitable donation,accrual earnings management and real earnings management.