Research On Equity Pledge And Financial Fraud Of Major Shareholders

Equity pledges are becoming more and more popular among businesses because of their simplicity and convenience.By pledging equity,companies can quickly obtain the cash flow they need to meet different funding needs.However,for shareholders who pledge their equity,they are also exposed to the risk that their shares may be forcibly closed out and they may lose control.As a result,the pledging shareholder may prompt or even "force" the listed company to commit financial fraud in order to whitewash its performance and maintain its share price.Coupled with the failure of external auditors,the financial fraud of many pledged companies often becomes a "fish out of water",which will undoubtedly seriously damage the rights of small and medium shareholders.Many of the listed companies exposed to financial fraud,such as Kangde Xin,Le Shi,Huishan Dairy,etc.,were accompanied by a high percentage of pledged equity by the major shareholders behind them.The academic literature on equity pledges and financial fraud is rich,but there is not much literature dedicated to studying the causes and characteristics of financial fraud of listed companies in the context of equity pledges by major shareholders.This thesis selects a medical machinery company with a market capitalization of 30 billion dollars-Qianshan Pharmaceutical Machinery as a case study,and analyzes the main characteristics of financial fraud in the context of pledging a high proportion of equity by its major shareholders in terms of the causes of financial fraud,the means of financial fraud,external regulation and audit deficiencies of CPA,etc.The main characteristics of financial fraud in the context of large shareholders’ high percentage of equity pledge are analyzed.Through the analysis of the financial fraud case of Qianshan Pharmaceutical Machinery,this thesis proposes the main countermeasures for the governance of financial fraud in the context of pledging of large shareholders’ equity from the company management level and external supervision level: first,to strengthen the moral and professional qualities of the management of listed companies and to improve the self-discipline of executives;second,to further improve the internal control mechanism of listed companies and to suppress the adverse effects of the selfish behavior of large shareholders on listed companies;third,to improve the information of listed companies(including the information of listed companies and the information of listed companies).Third,improve the disclosure of information of listed companies(such as pledges of major shareholders’ shares)and the legal system for major shareholders and senior management of companies,and increase the punishment for companies and personnel who violate the law;fourth,strengthen the professionalism of accounting firms and CPAs,and enhance the practice ability of CPAs.The research results of this thesis have certain guiding significance for identifying and preventing financial frauds of listed companies with pledges of major shareholders’ equity and improving relevant laws and regulations for the supervision of listed companies in China.