Controlling Shareholders’ Equity Pledge And Enterprise Financialization

With the acceleration of China’s economic development,listed companies are also facing more and more prominent financing needs and more serious financing difficulties.Especially in the context of strengthening financial supervision,broadening financing channels has become an important aspect for listed companies to enhance their core competitiveness.Equity pledge can convert the unavailable equity on the balance sheet into cash flow that can be used for the the operation of the company without diluting the original shareholders’ control.Therefore,it has ushered in explosive growth in the latest years.However,equity pledge financing not only provides funds for the business activities,but also creates certain risks for listed companies.Combined with the background of the universality of equity pledge and the accelerated process of financialization,this thesis explores whether and how the behavior of controlling shareholder to pledge equity financing will affect the financial investment level of enterprises.Through empirical research,it is found that:(1)Compared with companies that did not obtain equity financing through pledge,the financial investment level of the companies whose controlling shareholders take the equity they hold as the subject matter of pledge to obtain financing is significantly improved;(2)Mechanism research found that the second kind of agency cost and financing constraints are the path for the act of controlling shareholders financing their shares by pledging them to affect the level of enterprise financial investment.When the dominant stockholder obtains external financing through the pledge of equity,the cash flow right is seriously separated from the control right,which intensifies the motivation to empty out of the dominant stockholder,making the enterprise tend to allocate more financial assets to obtain short-term benefits,and the higher the proportion of the pledge of equity of the controlling shareholder,the more severe the financing constraint problem of the enterprise,In the case of limited funds,we pay more attention to the ROI and the length of PBP,and will prefer financial assets that are more variable and have a short return cycle.This shows that the aggravation of agency conflict between dominant stockholder and other shareholders and the deterioration of financing constraints caused by equity pledge are the mechanism of equity pledge affecting the level of financial investment;(3)When non-state-owned enterprises,investor sentiment is high and inside and outside surveillance mechanism is relatively inadequate,the positive relativity between the act of raising equity by pledge by controlling shareholder and enterprise financial investment level is more significant;(4)It is found that the long-term financial equity pledge leads to a significant reduction in the economic value of enterprises.The findings of this thesis replenish the research on the economic aftermath of the act of pledging equity financing and the motivation of enterprise financialization,and have a certain reference significance for supervising the behavior of enterprise equity pledge and guiding enterprises to carry out reasonable asset allocation.About the contribution of this thesis:first,based on the situation that the controlling shareholders use their equity for pledge financing,this thesis investigates the company’s financial asset allocation decision,and discovers the positive relation between the two.The research results of this thesis expand the literature of the affecting factors of enterprise financialization.Second,it supplements the research on how the controlling shareholder’s pledge financing affects the enterprise behavior.This thesis investigates whether and how the controlling shareholders’ pledge financing with their equity as the subject matter will affect the financial asset allocation decision of the enterprise,and expands the investigation of the economic implications of behavior of equity pledge financing.Thirdly,this thesis supplements the path of equity pledge acting on the level of enterprise financial investment,and finds that the controlling shareholder equity pledge plays an important role in enterprise financialization by aggravating the second kind of agency conflict and the degree of financing constraints.