A Study On The Causes And Consequences Of The Encroachment Of Controlling Shareholders' Interests Under Equity Pledge

Equity pledge refers to the act of using the equity held by shareholders as the pledge.Thanks to the unique advantages of strong equity liquidity and high value guarantee,various financial institutions are also willing to conduct equity pledge transactions.In 2013,securities companies were allowed to carry out equity pledge business on the market.Equity pledges were quickly recognized and loved by shareholders of listed companies,especially controlling shareholders,due to its simple operation and low threshold.However,as the frequency and proportion of equity pledges continue to increase,the risks and problems brought about by equity pledges are gradually exposed.In particular,the encroachment of interests arising from equity pledges has intensified.Prior to this,there have been Baoqianli and Beisheng Pharmaceuticals in the capital market.The controlling shareholders of other listed companies,under frequent equity pledges,cannibalize the company's interests through non-operating capital appropriation,related transactions,and related guarantees,which ultimately caused serious consequences.Therefore,it is particularly important to study the causes and consequences of the problem of interest encroachment under equity pledge.This article first introduces and analyzes the relevant theories,and combs the literature on the motivation and economic consequences of equity pledge,so as to provide theoretical and literature support.Then select ST Guanfu as the case study object to sort out the basic situation of its controlling shareholder equity pledge.Then through the analysis of the company's other receivables and related guarantee changes to analyze the way of the controlling shareholder's interest encroachment,as well as the change of the degree of encroachment before and after the equity pledge,on this basis,analyze the causes of interest encroachment under the equity pledge and the resulting consequences.The study found that the initial motivation for the equity pledge of ST Guanfu's controlling shareholder was based on the need for funds.However,as the frequency and proportion of equity pledges continue to increase,its interest encroachment motives have gradually become prominent,through non-operating capital appropriation and related guarantees.Embezzlement of the company's interests,its interest embezzlement behavior is the result of the combined effect of many factors.The controlling shareholder's inability to obtain high profits from the company's operations is the most direct cause of its interest embezzlement behavior.The equity pledge causes the separation of control rights and cash flow rights.This makes the conflict of interest more serious,while reducing the cost of interest encroachment,and enhances the motivation for interest encroachment.The defects of the company's internal governance mechanism and the lack of supervision by external audit institutions ensure the smooth implementation of the interest encroachment behavior.The market's control of the controlling shareholder's equity Pledge and interest encroachment have reacted negatively.At the same time,this interest encroachment has adversely affected the company's performance.As a result,the company's shares held by the controlling shareholder are frozen or waiting to be frozen,causing the company to face the risk of actual control transfer.The company's reputation has been severely damaged.