Controlling Shareholder’s Equity Pledge,Information Disclosure And Auditor’s Decisions

Because of its simple business process and low financing cost,Equity pledge is welcomed by shareholders of listed companies.With the expansion of the scale of pledge,the risks brought by equity pledge are gradually emerging.After the equity pledge,when there is downside risk in the stock price,the pledgee will choose to close the position,that is,sell the stock to ensure the recovery of funds,and the behavior of forcibly closing the position will cause the controlling shareholder of the listed company to lose control.Therefore,in order to maintain the stability of control right,the controlling shareholder has the motivation to implement illegal market value management after pledge of equity to ensure the stability of stock price.In addition,the pledge of the controlling shareholder’s equity means that it is facing financial constraints,and it will also send negative signals to the capital market about the operating status and financial status of listed companies,thus affecting the financial status and operating performance of listed companies.As an important part of the capital market,auditors are the closest external supervisors to listed companies.Compared with small and medium investors,auditors have more solid financial knowledge and can make professional judgments.The negative signals transmitted by equity pledge and the potential risks of controlling shareholders’ violations are easily perceived by auditors,so the equity pledge behavior of controlling shareholders will affect auditors’ decisions.Information disclosure plays an important role in communication between listed companies and their external subjects.Whether it is to stabilize the positive expectations of the capital market for listed companies or to conceal the hollowing-out behavior of listed companies,controlling shareholders have the motivation to guide external stakeholders to judge listed companies by manipulating information disclosure,and auditors need to express professional opinions on the quality of information disclosure of listed companies,so the behavior of controlling shareholders manipulating information disclosure after equity pledge will affect auditors’ decision-making.Taking the A-share listed companies in Shanghai and Shenzhen stock markets from 2011 to 2020 as research samples,this paper investigates how the controlling shareholder’s equity pledge behavior affects the auditor’s decision-making,and puts information disclosure into the research framework to analyze its mediating effect.This paper also studies the influence of ownership concentration on the relationship between the controlling shareholder’s equity pledge and auditor’s decision-making,and whether there are differences between the auditors from different offices when dealing with the risks brought by the controlling shareholder’s equity pledge.The research has these conclusions:(1)The auditor’s decisions will be influenced by the equity pledge of the controlling shareholder.Specifically,the behavior of the controlling shareholder’s equity pledge will lead the auditor to charge higher audit fees,and at the same time,it is easier for the auditor to change;(2)Information disclosure plays an intermediary role between the controlling shareholder’s equity pledge and auditor’s decision-making,that is,after the equity pledge,the controlling shareholder has the motivation to intervene in the company’s information disclosure,which leads to the decrease of the information disclosure quality of listed companies,which leads to the increase of audit fees and the change of auditors;(3)The degree of equity concentration will affect the relationship between the controlling shareholder’s equity pledge and the auditor’s decision-making.Besides,facing the risks brought by the controlling shareholder’s equity pledge,the office characteristics will also affect the auditor’s decision-making.Specifically,there are differences in the decision-making between the four international and non-international auditors,the top ten domestic auditors and the top ten non-domestic auditors when facing the risks brought by the pledge of the controlling shareholders’ equity.The findings of this paper enrich the relevant research about the economic influence of equity pledge,and also provide empirical evidence for the internal mechanism of auditor’s risk decision-making,and provide reference for optimizing the supervision policy of equity pledge and regulating the behavior of controlling shareholders.