Research On The Impact Of Controlling Shareholders’ Equity Pledges On Management’s Short-sighted Behavior

Since the release of the Guarantee Law of the People’s Republic of China,the phenomenon of equity pledge has become more and more common,and the research on this area has become abundant.Existing studies have demonstrated from various perspectives that the phenomenon of controlling shareholder’s equity pledge will have different effects on listed companies,and the study of the interaction between them is of positive significance to strengthen corporate governance and protect the interests of small and medium shareholders.Therefore,this paper takes the relationship between equity pledge and management behavior as the starting point to explore how controlling shareholder’s equity pledge will affect management behavior.By analyzing the "separation of powers" effect and the potential "transfer of control" risk brought by equity pledges to controlling shareholders,this paper argues that management will be subject to both the pressure of surplus management from controlling shareholders and their own management defense considerations,which will intensify management’s short-termism.In measuring short-sightedness,the paper considers that management will be subject to both pressure from controlling shareholders to manage earnings and their own management defenses.In measuring short-sightedness,this paper uses the decrease in R&D investment and the increase in the level of "financialization" of the company as criteria to make the measurement more comprehensive.Through the empirical analysis,we find that the pledging of controlling shareholders’ equity does make the management reduce innovation investment and increase the level of "financialization" at the same time.The equity pledge will more significantly aggravate management’s short-sightedness for controlling shareholders with lower shareholdings and those with higher shareholdings.Further,this paper considers whether differences in management shareholdings lead to different empirical results,and finds through group regressions that there is no significant difference in the effect of equity pledges on management with high and low shareholdings,which may be due to equity concentration and insufficient competition in the product market.Finally,in order to bring China’s equity pledge system into a more standardized development track,this paper puts forward policy recommendations such as improving legislation in equity pledge-related fields,strengthening corporate information disclosure,and improving management assessment mechanisms.