A Case Study On The Interest Encroachment By The Controlling Shareholder’s Pledge In Spearhead Co.,Ltd.

Equity pledge is a financing tool widely used in the capital market,which has solved the problem of financing difficulties for the controlling shareholder of many listed companies.However,due to the imperfect relevant rules and regulations,the thunderstorm of equity pledge and the transfer of interests of controlling shareholder occur frequently.The control right is still in the hands of shareholder after pledge,However,the risk of stock price fluctuation of the pledged company’s shares is borne by the pledgee,which reduces the interest encroachment cost of the controlling shareholder during the pledge period,makes the controlling shareholder do somethings that damage the interests of other investors,and the risk of equity pledge expands accordingly.Therefore,taking Spearhead Co.,Ltd.,a GEM listed company,as a case,this thesis studies the interest encroachment by the controlling shareholder’s pledge.Firstly,this thesis starts with the research background,takes the information asymmetry theory,principal-agent theory,private interest theory of control right and tunnel excavation theory as the theoretical basis,combined with the specific cases of interest encroachment by the controlling shareholder’s pledge in Spearhead,and analyzes the number of equity pledge and capital investment of the controlling shareholder.It is found that the proportion of equity pledge of controlling shareholder has increased until it reached 99.91%,then decreased slowly and has been in the state of outstanding debt from 2014 to 2021.By analyzing the motivation of equity pledge of controlling shareholder,it is found that the reasons for equity pledge include meeting the development needs of listed company,maintaining control and obtaining benefits.Then constructs a three-party game model,analyzes the interest behavior of the controlling shareholder through the game analysis method,then studies how to implement and measure the interest encroachment behavior by the controlling shareholder’s pledge in the case company,and further analyzes the reasons for its interest encroachment in combination with the analysis conclusions of the previous game model,Then,through event research and other methods,combined with real financial data,this thesis analyzes the impact of its interest encroachment on listed companies,controlling shareholder themselves,pledgees and other stakeholders,and then puts forward relevant countermeasures and suggestions.By solving and analyzing the tripartite game model from a mathematical perspective,it is found that the interest encroachment behavior of controlling shareholder is not only constrained by other investors and regulatory authorities,but also related to the ownership structure,the correlation between balances and the company.It is found that for investors and regulators,in order to maximize their own interests,the probability of interest encroachment by controlling shareholder should be as small as possible within a certain range.In order to prevent controlling shareholder from gaining more encroaching interests,the probability of other shareholders adopting checks and balances and the frequency of supervision by regulators should be as large as possible within a certain range.In addition,shareholders who are more related to listed companies are more likely to stop the encroachment of controlling shareholder.In the same case,the shareholder with more control can get more benefit from encroachment.Then,through the case study,this thesis finds that after the equity pledge of the controlling shareholder,it first enjoys the company’s dividend and equity transfer income through private transaction of equity,obtains private interests by purchasing related party companies at a premium price,and then directly occupies the company’s funds.With the increasing proportion of the equity pledge of the controlling shareholder,the degree of interest encroachment is increasing.Combined with the game model to further study the causes of its interest behavior,and according to the analysis of various data,it is found that the controlling shareholder’s interest encroachment has had varying degrees of adverse effects on all parties.Based on the above analysis,this thesis puts forward countermeasures and suggestions to prevent the interest encroachment by the controlling shareholder’s pledge from the perspective of internal and external constraints.