Research On The Influence Of Equity Pledge Of Controlling Shareholders On Earnings Management

As a vital financing method for controlling shareholders of listed companies,equity pledge has attracted widespread attention from the public and academia.Due to the large demand for working capital of GEM listed companies,equity pledge financing is favored by high-growth GEM listed companies due to its convenience and low cost.Because of the information asymmetry between the pledging shareholders and the pledgee,the controlling shareholders may increase or stabilize the stock price by manipulating the surplus.In order to avoid the risk of control transfer caused by the decline of stock price,the controlling shareholders with power advantages are more motivated to conduct earnings management activities after the pledge of stock rights.This article takes the data of listed companies on the GEM listed companies from 2014 to 2021 as the research sample,selects whether there is equity pledge and the proportion of the last pledge of the year to measure the degree of equity pledge.Earnings management is divided into two types: accrued earnings management and real earnings management,with the measurement models using the modified Jones model and the Royshowdhury model respectively.Empirical research on the impact of controlling shareholder equity pledge on earnings management.The results show that the equity pledge behavior of controlling shareholders can promote the increase of corporate earnings management;As the proportion of pledge increases,the actions taken by controlling shareholders to pledge their equity will significantly promote both accrued earnings management and real earnings management,but the increase in real earnings management is greater than that of accrued earnings management;Compared to non high-tech enterprises,earnings management activities in high and new technology enterprises are more significant,and there are differences in the implementation methods between the two;Equity checks and balances play a regulatory role in the relationship between equity pledge and real earnings management,and equity concentration plays a significant positive regulatory role in the relationship between equity pledge ratio and real earnings management.In other words,with the increase of power concentration,higher pledge ratio has a stronger promoting effect on the increase of real earnings management.According to the research conclusions,the government should increase support for small and medium-sized emerging enterprises on the GEM,and solve the difficult financing dilemma of individual enterprises,which can effectively reduce the speculative behavior caused by equity pledge financing.Enterprises should pay attention to the management of equity structure,prevent excessive concentration of power,and create a good and orderly governance environment under strict control.In addition,we should pay attention to strengthening the institutional assumptions,improving the supervision on the process of equity pledge,refining the provisions on the purpose and destination of financing funds,and avoiding the phenomenon that controlling shareholders harm the interests of other equity holders for personal gain,so as to achieve the purpose of restraining enterprises from improper financial manipulation..The research conclusions are helpful to understand more comprehensively the economic consequences of equity pledge and the motivation of earnings management.Starting from the GEM market,it is expected to expand the scope of research on equity pledge and earnings management and further enrich relevant research.This has certain reference significance for regulating controlling shareholders’ equity pledge financing behavior,improving the internal governance structure,and strengthening external supervision.At the same time,it is of great significance for how to better review and restrain corporate earnings management behavior and stabilize the operation of the capital market.