Controlling Shareholders’ Equity Pledge,Internal Control And Financing Constraints

Capital is the blood of enterprises,and financing activities play an important role in enterprises and are the only way for enterprises to develop.However,due to information asymmetry and agency problems,"financing is difficult and expensive" has become a"normalization" problem faced by Chinese enterprises.Financing constraint will not only reduce the efficiency of resource allocation,restrict the healthy and stable development of Chinese enterprises,but even affect the overall economic operation and industrial system reform in China,which is a "roadblock" that hinders China’s economic development.At the same time,equity pledge,as a new financing method,is loved by capital demanders because of its simple approval process,fast financing speed and still retaining shareholders’ control rights.There are almost no shares in China’s A-share market,and the equity pledge of controlling shareholders has formed a "large-scale" and "high market value" situation in China.However,equity pledge is a "double-edged sword",which intensifies the agency conflict and information asymmetry with the outside world while obtaining funds,thus stimulating the "hollowing out" motivation of controlling shareholders and sending negative signals to the outside world.In this regard,in order to ensure their own interests,external investors have to raise the risk return rate and raise the financing threshold of enterprises,thus making enterprises face more serious financing constraints.Therefore,it is of great practical significance for China’s economic market to study the influence of controlling shareholder’s equity pledge on corporate financing constraints.In addition,internal control is very important for the financial situation and long-term development of enterprises.High-quality internal control can not only standardize the daily operation of enterprises,improve operating efficiency and operating income,but also effectively supervise and restrain the controlling shareholders and reduce their encroachment on the interests of enterprises.It can also alleviate information asymmetry and improve the transparency of enterprise information,thereby enhancing investors’ trust in enterprises and reducing the restrictions on enterprise financing.Based on the above analysis,this paper will focus on how the controlling shareholder’s implementation of equity pledge will affect the financing constraints of enterprises,how the level of internal control of enterprises will affect the level of financing constraints,and whether internal control has a regulatory effect on the financing constraints of enterprises that implement equity pledge of controlling shareholders.Based on the nature of enterprise property rights,this paper will further conduct group analysis to explore whether there are differences among listed companies under different property rights.Through this study,it is expected to provide useful reference for alleviating the degree of financing constraints of Chinese enterprises,supervising the pledge of controlling shareholders’ equity and strengthening the internal control system of enterprises.Firstly,this paper systematically sorts out the literature and defines the concepts of controlling shareholder’s equity pledge,internal control and financing constraint,expounds and analyzes the theories of principal-agent,information asymmetry and signal transmission,and comprehensively considers the action mechanism between variables,thus putting forward the research hypothesis of this paper.On this basis,this paper takes the data of China’s Shanghai and Shenzhen A-share listed companies from 2016 to 2020 as the research sample,and uses descriptive statistics,correlation analysis and multiple linear regression methods to empirically test the relationship among the above three.The results show that:(1)The stock pledge behavior of controlling shareholders will significantly aggravate the level of corporate financing constraints.(2)High-quality internal control can alleviate the financing constraint level of enterprises.(3)High-quality internal control can adjust the relationship between the controlling shareholder’s equity pledge and financing constraints,that is,high-quality internal control can alleviate the financing constraints caused by the controlling shareholder’s equity pledge.(4)The above conclusions are more obvious in non-state-owned enterprises.Finally,according to the empirical research results,this paper puts forward some relevant countermeasures and suggestions,such as paying attention to the pledge behavior of shareholders,improving the internal control mechanism of enterprises,optimizing the information disclosure mechanism of equity pledge,setting up a reasonable"warning line"and standardizing the management of pledged funds.