Research On The Influence Of Controlling Shareholders’ Equity Pledge On Inefficient Investment Of Listed Companies

Equity pledge refers to the financial transaction activities in which the shareholders of an enterprise borrow funds from banks,trusts,securities companies and other financial institutions with their equity rights to dispose of according to law as collateral.In recent years,the demand for equity pledge is growing,shareholders through equity pledge financing is actually the optimal allocation of equity investment,while maintaining the control position of shareholders while improving the liquidity of equity assets,the static book equity into available monetary resources,however,equity pledge in the convenience of shareholders but also hide certain risks,equity pledge leads to the separation of "control" and "cash flow right" of the enterprise,strengthening the "hollowing" of controlling shareholders motivates and weakens the "synergy of interests" effect of the controlling shareholder with the company and other shareholders.At the same time,the controlling shareholder can still materially influence the company’s decision-making through its control after the equity is pledged.Driven by these contradictions and risks,the attitude and position of controlling shareholders in the face of investment decisions may undergo great changes,and then adjust their behavior patterns,use their own voice power to influence the company’s investment decisions,and aggravate the phenomenon of inefficient investment of listed companies.The investment of enterprises is not only the premise of enterprise value creation and realization,but also the driving force for the sustainable development of enterprises.Therefore,it is of great practical significance to conduct an in-depth discussion on the relationship between the equity pledge of controlling shareholders and the inefficient investment of enterprises.This paper first describes the phenomenon of equity pledge of controlling shareholders in China’s capital market,and then summarizes the relevant literature of equity pledge and inefficient investment of controlling shareholders,on this basis,starting from the dual motivation of "hollowing out" and market value management after equity pledge of controlling shareholders,combined with the theory of principal-agent theory,information asymmetry theory,signal transmission theory and control private interest theory,the relationship between equity pledge and inefficient investment of controlling shareholders in China is theoretically analyzed,and hypotheses are put forward.Secondly,this paper takes China’s A-share listed companies from 2013 to 2021 as the analysis object,and combines the residual measurement model to construct the indicators of inefficient investment of listed companies.On this basis,the influence of equity pledge of controlling shareholders on inefficient investment is analyzed,and the main view is that the equity pledge of controlling shareholders will aggravate the inefficient investment of listed companies.Then,this paper discusses the effect path of equity pledge on inefficient investment from the perspective of behavior transmission and motivation change of controlling shareholders,and empirically tests the intermediary transmission mechanism of real earnings management.Furthermore,the negative regulating effect of equity checks and balances and internal control is studied from the perspective of internal corporate governance,and the negative regulating effect of institutional investors is studied from the perspective of external corporate governance.This paper concludes that first,there is a significant positive correlation between the equity pledge of controlling shareholders and the inefficient investment of listed companies.Driven by the "hollowing" behavior and the motivation of "market value management",the correspondence between the investment expenditure of controlling shareholders and investment opportunities produces a "distortion effect",resulting in the mismatch of investment resources and investment projects,and aggravating the degree of inefficient investment of listed companies.Second,equity pledging exacerbates inefficient investment by improving the real earnings management level of enterprises.Third,equity checks and balances,internal control,and institutional investor shareholding can alleviate the relationship between equity pledge and inefficient investment by controlling shareholders.Based on the above conclusions,relevant suggestions are put forward for enterprises and relevant departments.The contributions of this paper are:(1)Expand the research content of inefficient investment.Starting from the controlling shareholder as the main governance body,this paper verifies the relationship between the controlling shareholder’s equity pledge and inefficient investment based on the dual motivation of controlling shareholder hollowing out and market value management,and follows the dynamic research route of "controlling shareholder’s personal economic behavior-controlling shareholder’s motivation change-enterprise inefficient investment behavior".(2)The introduction of real earnings management,a hidden stock price management method,reveals the mechanism of equity pledge to aggravate inefficient investment.(3)The relevant conclusions and suggestions in this paper provide empirical evidence for Chinese companies to avoid pledge risks and improve inefficient investment.