The Impact Of Controlling Shareholder Equity Pledge On Real Earnings Management

With the rapid development of the capital market,equity pledge has become an increasingly important financing.Although the domestic equity pledge business has developed rapidly in recent years,its various hidden dangers have also received more and more attention.In order to avoid the risk of decline in the value of equity as collateral,the controlling shareholder has a strong incentive to collude with the management to manage the company's earnings.Since companies will attract the attention of the capital market after the pledge of the controlling shareholder's equity,and the real earnings management operation is more concealed,companies tend to implement real earnings management after the equity pledge.However,true earnings management will damage the long-term value of the company and cause certain infringements on the interests of small and medium shareholders.Then,whether the ownership structure of "one share dominates" will indulge the controlling shareholder's true earnings management of the company,and whether reasonable equity checks and balances and high internal control quality can inhibit the controlling shareholder's true earnings management of the company? These are still unknown.Therefore,this paper selects the listed manufacturing companies from 2014 to 2019,introduces the ownership structure and internal control quality as adjustment variables,and studies the real earnings management of listed companies under the background of the pledge of controlling shareholders' equity.First,this article reviews the existing literature on equity pledge motives and economic consequences,earnings management motives and methods.Secondly,based on the three theoretical foundations of information asymmetry,principal-agent theory and incomplete contract theory,it analyzes the mechanism of controlling shareholders' influence on earnings management,and then this article analyzes the governance role of ownership structure and internal control.Then,starting from the case,choosing a representative case of Gudi Technology Co.,Ltd.,based on Guangdong Gudi Plastic Co.,Ltd.'s equity pledge behavior,exploring the pledge motives behind it,conducting in-depth discussions on the earnings management phenomenon before and after pledge,summarizing the four studies in this article Suppose,and then use empirical induction to draw conclusions and discuss the economic consequences of equity pledge in depth.Finally,it provides valuable experience and lessons for other companies to conduct earnings management behaviors after equity pledges.Based on case analysis and empirical analysis,this article draws the following conclusions: First,compared with companies where the controlling shareholders have not pledged equity,companies with equity pledges by controlling shareholders are more likely to be real through manipulation of sales,manipulation of expenses,and manipulation of production.Earnings management adjusts profits.Second,the controlling shareholder's shareholding ratio has a positive regulatory effect on the relationship between the controlling shareholder's equity pledge and real earnings management.In other words,the controlling shareholder's shareholding ratio is too high,and the controlling shareholder is usually more capable of implementing opportunistic behaviors,prompting them to implement various real earnings management behaviors for their own benefit.Third,a better degree of equity checks and balances has the effect of significantly weakening the relationship between major shareholders' equity pledge and earnings management in listed companies.A governance mechanism in which multiple major shareholders share control rights can effectively contain the controlling shareholders' self-interested behavior and prevent them from using equity pledges.Carry out real earnings management behaviors that are harmful to the long-term development of the company.Fourth,the quality of internal control is higher,which can restrain the influence of controlling shareholders' equity pledge on real earnings management to a greater extent.As an important part of corporate governance,internal control plays an important role in improving the quality of company accounting information and reducing information uncertainty.The innovation of this article lies in: First,this article studies the influence of controlling shareholder pledge on real earnings management through two new perspectives of ownership structure and internal control.Regarding the influence of controlling shareholder pledge on earnings management,the existing literature mostly focuses on equity pledge ratio,property rights heterogeneity,and institutional investors' shareholding.It lacks research on the relationship between the two from the perspective of the company's equity structure and internal control.The effective literature is difficult to provide practical and realistic guidance for the improvement of the internal mechanism of the controlling shareholder's equity pledge.Second,in addition to empirical research,this article has also made certain innovations in case studies.In the past,scholars' research on the effect of controlling shareholder's equity pledge on earnings management was mostly limited to large sample studies.A research paradigm combining case analysis and empirical research.This article starts from the case,demonstrates the phenomenon,concludes with empirical evidence,and draws conclusions to provide valuable experience and lessons for other companies' earnings management behaviors after equity pledges.The research in this paper also has certain limitations,such as the lack of consideration of the financing use of equity pledge,the length of the equity pledge period and the pledge discount rate,which are also the direction of follow-up research.