Research On The Corporate Govenrance Effect Of Non-Controlling Shareholders’ Equity Pledge

Equity pledge has been an important channel for listed companies in China to supplement funds in recent years.At present,many academic studies in China have conducted many studies on the equity pledge of controlling shareholders based on the phenomenon of "one share dominating" in the capital market.However,the phenomenon of equity pledge transactions among non controlling shareholders is increasing,and non controlling shareholders are gradually becoming an undeniable force in equity pledge transactions.At the same time,due to the disadvantaged position of non controlling shareholders in listed companies,they are often forced to "vote with their feet" in the face of encroachment on the interests of controlling shareholders,making it difficult to effectively protect their own interests.At present,there is a lack of mechanisms suitable for non controlling shareholders to actively participate in corporate governance in China,and there are insufficient tools to effectively protect the interests of non controlling shareholders.This article takes into account the current situation of corporate governance in China and links the pledge of non controlling shareholders’ equity with corporate governance issues.By designing the pledge of non controlling shareholders’ equity as a corporate governance tool,it helps non controlling shareholders actively participate in corporate governance and protect their own interests.This article uses data from Chinese listed companies from 2013 to 2020 to empirically test the inhibitory effect of non controlling shareholder equity pledge on the encroachment of controlling shareholder interests in the company.The results showed that equity pledge by non controlling shareholders can increase the agency cost of the company,reduce the utility of controlling shareholder embezzlement behavior,and thus reduce the related party transactions or fund embezzlement behavior of the company’s controlling shareholders,exerting governance effects.The strength of this governance effect is related to the motivation of non controlling shareholders’ equity pledge.The stronger the motivation of non controlling shareholders to participate in corporate governance,the stronger the governance effect generated by their pledged equity.And when the controlling shareholder holds a higher proportion of shares in the company,the governance effect of non controlling shareholder equity pledge is stronger,because controlling shareholders with a higher proportion of shares suffer greater damage when facing additional agency costs.In addition,analysts’ attention and analysis of listed companies can effectively convey information about the company,expand the influence of non controlling shareholder equity pledge,and enhance the governance effect of equity pledge.This article refers to existing literature and selects the regional average and industry average levels of non controlling shareholder pledge as instrumental variables.After using two-stage regression analysis,the conclusion is still significantly valid.This article is based on the principal-agent theory and proves the feasibility of non controlling shareholders implementing active governance through equity pledge,expanding the research paradigm of shareholder internal governance.This is a new exploration of a new mechanism that can effectively safeguard the interests of small and medium-sized shareholders in an environment where the constraints of traditional shareholder governance methods are weakened;It is also an attempt to promote the combination of Chicago school’s shareholder activism research and China’s capital market practice;It helps the market to understand equity pledge transactions from another perspective,and also provides empirical evidence for the regulatory level to design more targeted systems to protect investors.