Research On Equity Pledge Risk And Rescue Effect Of Controlling Shareholders Of Private Listed Companies

Since 2013,equity pledge has developed rapidly in China with its advantages of low threshold,low cost and flexible method,and a large number of private listed companies have adopted this method for financing.From 2013 to 2017,the market value of equity pledge of Chinese private listed companies increased year by year,and the risks accumulated were also increasing.Until the critical year of 2018,due to the downward economic fundamentals,the China-Us trade friction,the introduction of new regulations on capital management and other factors,the market continued to weaken,stock prices fluctuated sharply,private listed companies equity pledge incidents occurred frequently,many listed companies were suspended from trading in emergency,the crisis caused by equity pledge made the whole financial market worried.In October 2018,the central government and various regulatory agencies voiced their voices one after another,putting forward a number of measures to alleviate the financing difficulties of enterprises,and confirming that state-owned capital backstop,asset management plan rescue and other methods will be adopted to alleviate the risk of private enterprises’ stock pledge.With the continuous response and implementation of various rescue plans,a number of private listed companies including Victory Precision have been rescued by the rescue fund.Generally speaking,the rescue fund has effectively solved the liquidity problem of some private listed companies,but there are still practical problems such as deviation of investment objectives and imprudent selection of rescue objects.On May 13,2022,the China Securities Association and the China Foundation Association jointly issued relevant guidelines,aiming to standardize the securities industry and give full play to its advantages to help private enterprises develop in high quality.In order to respond to the standardization call of the guidelines,help the development of private enterprises,and deepen the research on the operation effect of rescue fund,this paper takes Victory Precision case,a typical case in the first batch of rescue cases under the background of equity pledge rescue at the end of 2018,as the research object,to explore the risk of equity pledge of Victory Precision’s controlling shareholder and the actual effect of rescue fund operation.Based on this,the first two chapters of this paper firstly sort out relevant concepts through theoretical research,and analyze the risk of equity pledge and its rescue effect from a macro level by combining literature research method,paving the way for the specific case analysis in the following paper.The third chapter of this paper directly enters the subject of the case,expounds the basic situation of the rescue parties and introduces the implementation process and mode of the rescue fund.In the fourth chapter,this paper makes an in-depth analysis of the equity pledge risk of Victory Precision Controlling shareholders,and tracks the source of the risk deeply.The fifth chapter of this paper analyzes the motivation of the rescue parties,and makes a multi-dimensional analysis of the operation effect of the rescue fund from the perspective of internal risk relief and external market benefit,and obtains valuable results.The conclusions of this paper are as follows:1)The deep reason for Victory Precision’s predicament lies in its aggressive investment and acquisition strategy and its irrational capital structure which relies heavily on liquid liabilities;2)The equity pledge risk of Victory Precision’s controlling shareholders is mainly reflected in the liquidity shortage with no shares to pledge,and the crisis of control transfer of the actual controller caused by the sharp decline in stock price;3)Through in-depth analysis of the actual results of the rescue fund,it is found that the rescue fund has greatly reduced the liquidation risk faced by the real controller of Victory Precision,brought a significant positive impact on the short-term market reaction of the company,and played a positive role in the improvement of the company’s value and growth to a certain extent.However,it has no obvious effect on the improvement of capital structure,liquidity ability and overall financial risk level.Based on the concrete analysis of Soochow Venture Capital’s case of relieving Victory Precision,this paper also draws the following enlightenment:1)The rescue fund can only support private enterprises in the short term,but cannot fundamentally improve the operation effect of enterprises.Private listed companies need to maintain a reasonable capital structure and business model in the long term;2)The rescue fund should give full play to its professional advantages to form a long-term rescue mechanism;3)The government should play a leading role in improving the evaluation mechanism of the rescue fund and improving the rescue efficiency.