A Study Of Tunneling Behaviour Under Equity Pledges By Major Shareholders Of Zotye Auto

In recent years,equity pledges have prospered in the capital market by virtue of their advantages of low financing costs,short processing period and retention of control of the company.However,while equity pledges bring financing convenience to major shareholders,they may also distort the behaviour of major shareholders and induce them to hollow out listed companies.Especially under the conditions of macroeconomic downturn,chaotic internal corporate governance and ineffective external supervision,the pledging of large shareholders’ equity pledges have been plagued by mines and short positions,and the short selling behaviour under the pledging of large shareholders’ equity pledges has become a hot topic of concern.This paper adopts a research method combining literature research method and case study method.In terms of literature research,the existing studies on the motives and economic consequences of equity pledges by major shareholders,the causes and means of short selling by major shareholders,and the relationship between equity pledges and short selling are summarised respectively to systematically summarise the theoretical basis of short selling behaviour triggered by equity pledges by major shareholders.In terms of case studies,the emptying behaviour of Zotye Auto under the equity pledge of its major shareholder is studied.By combing through the previous equity pledges of Zotye Auto’s major shareholder,it is identified that the major shareholder,Tie Niu Group,and its concerted action partner,Jinma Group,have four anomalies in the process of equity pledge,namely,high pledge of shares at the early stage of listing,high cumulative pledge ratio of shareholders,too little information disclosed in the pledge announcement,and repeated pledge of a single equity and to introduce and analyse five specific hollowing out tactics of major shareholders: equity pledge default,performance compensation default,high premium for asset replacement,related party fund appropriation and irregular information disclosure.In order to study the impact of share pledges on short selling behaviour,this paper firstly calculates and compares the separation of powers before and after share pledges,and argues that the greater the separation of powers,the greater the second type of agency problem between major shareholders and minority shareholders,which weakens the incentive effect on major shareholders and strengthens the encroachment effect on minority shareholders,triggering the short selling behaviour of major shareholders.Secondly,by estimating the amount of financing obtained from equity pledges and comparing it with the cost of short selling,it is found that equity pledges can cash out the value of shares in advance,reduce the cost of short selling and transfer the risk of share price decline to a certain extent,and when the amount of financing from equity pledges is greater than the variable cash amount of the shares held by them,the major shareholders will be incentivised to default on the pledges and refuse to repay the money,thus committing short selling.In particular,under factors such as major shareholders being in financing difficulties,lack of checks and balances in the shareholding structure of listed companies,major deficiencies in internal controls and imperfect external regulatory systems,short-selling under shareholding pledges by major shareholders is more likely to materialise.In this case,the short-selling act under the equity pledge of Tie Niu Group led to the economic consequences such as the doubtful ability of Zotye Auto to continue its business,the decline of the value of the company and the damage of the interests of the small and medium shareholders.In this regard,in order to prevent the occurrence of short-selling by major shareholders under equity pledges,it is necessary for listed companies to improve their internal control mechanisms,including the establishment of equity check and balance mechanisms and the strengthening of internal corporate governance;and it is also necessary for external regulators to play a governance role,including the improvement of the legal system relating to equity pledges,the strengthening of information disclosure mechanisms and the increase of penalties for non-compliance.