Research On The Impact Of Controlling Shareholder Equity Pledge On The Dynamic Adjustment Of Corporate Capital Structure

Chinese companies have a great need for liquidity and equity pledges have turned out to be a source of financing as they are more convenient.While equity pledge provides convenience for companies,they also face risks.Equity pledge is a way of obtaining funds by pledging equity as collateral and require the stock price to be kept stable within certain manageable limits.In the event that the price of a company’s shares decreases to the agreed price line in the future,there is a significant risk that the controlling shareholder will lose control.To prevent this from happening,the controlling shareholder will take a number of measures,including earnings management,management incentives and information disclosure,to keep the share price from falling below the prescribed price and avoid leaving the company.Corporate structure adjustment is an important reflection of the level of corporate governance and a decisions that will have a profound influence on the future of the company.In this context,this paper explores the link between shareholder equity pledge and capital structure adjustment.Firstly,the concepts of equity pledge and capital structure adjustment in the Chinese market are defined to sort out the driving forces and influencing factors of their development.Secondly,it combines modern capital structure theory,agency cost theory and market timing theory to analyse the mechanism of shareholders’ equity pledge and corporate capital structure from 2 perspectives of pledges in order to overcome information asymmetry and enhance market value management.It also classifies the transmission paths based on both financing constraints and agency costs.Again,the moderating role of competition in the banking sector is further explored.Finally,regression models are developed for the main effects,moderating effects and transmission channels of the four research hypotheses and following the empirical analysis,four recommendations are provided.In the results of empirical regressions on various data for companies listed on the Shanghai and Shenzhen stock exchanges from 2004 to 2021,we can see that firstly,controlling shareholder share pledges accelerate structure adjustment and this effect is more useful for non-state,small and good governance companies.Secondly,bank competition weakens this positive effect.Thirdly,tests of the transmission mechanism suggest that equity pledges accelerate structure adjustment through the path of lowering funding restrictions and reducing proxy costs.After the study,the article gives some recommendations.(i)Improve the documentation and information disclosure system to ensure that the risk of corporate equity pledge is clear and that the information used to impair equity pledge is clear and under control.(ii)To deepen the reform of the financial system.Optimise the structure of the banking system,optimise the development of mass finance,optimise good competition in the banking sector and increase the rate of return on loan capital.(iii)Reduce the risk of equity pledge by enterprises.Enterprises should raise internal awareness of equity pledge,establish internal oversight control systems and take more proactive measures to ensure the implementation of equity pledge.(iiii)Investors are rational in their investments.By considering multiple aspects of a company’s decisions,investors can rationally judge market conditions and make more rational investment decisions.