Study On The Motivation And Consequences Of Share Repurchase By Wanfeng Aowei Under The Pledge Of Controlling Shareholder’s Equity

Equity pledges,as an important financial instrument with low cost and convenience,are widely used in China’s capital market,but equity pledges are not without risk.In 2018,China’s stock market was in the doldrums and share prices were at a low ebb.The share prices of many companies whose equity was pledged fell to the warning line and the pledged shares faced the risk of closing out,and for some controlling shareholders who pledged a large proportion of their equity,they also faced the risk of transferring control.At this time,controlling shareholders often use a variety of market value management methods to stabilise and increase share prices,in addition to improving their management to increase profits.Share buybacks,as a common behaviour in the capital market,can signal to the outside world that the share price is undervalued,which can attract investors to buy shares,boost the share price and mitigate the risk of equity pledges.This article uses a case study approach to analyse the motives and economic consequences of share buybacks by Wanfeng Aowei.The study finds that:(1)Wanfeng Aowei has a strong opportunistic motive for conducting share repurchases for three consecutive years,and the repurchases are mainly to alleviate the closing risk and control transfer risk arising from the large proportion of share pledges by controlling shareholders.At the same time,small and medium-sized investors are unable to make an accurate judgment in the short term.(2)Wanfeng Aowei’s opportunistic share repurchases did not alleviate the controlling shareholder’s equity pledge risk,as evidenced by the fact that the share price only improved in the short term after the share repurchases,with limited relief to the closing risk of the equity pledge,while the controlling shareholder’s equity pledge ratio remained at a high level.(3)The share buyback of Wanfeng Aowei further affected the company’s operating results and increased the financial risk of the enterprise.Through the analysis of the case,this paper concludes that share repurchases in the context of high proportion of share pledges by controlling shareholders have an opportunistic purpose,while it is difficult for small and medium-sized investors to determine the real motivation for such share repurchases in the short term.At the same time,share buybacks based on opportunism cannot mitigate the risk of equity pledges,but rather pose a risk to the company.Therefore,this paper puts forward relevant recommendations to provide reference for listed companies to make decisions on share buybacks by controlling shareholders,and to provide experience for small and mediumsized investors to understand share buybacks properly and for government departments to carry out regulatory work.