Research On The Influence And Mechanism Of Major Shareholders’ Equity Pledge On The Corporate Financial Risk

Since 2013,the equity pledge business has gradually become a popular financing method due to its simple and convenient operation,fast and efficient access to funds,and strong liquidity.However,there are also risks in equity pledges.Under the market conditions of the stock market plummeting in 2015 and 2018,a large number of pledged shares were forced to close,which had a huge negative impact on the company and the market.Although after 2018,China has successively introduced policies to regulate the equity pledge business and achieved certain results,it is still a financing method generally favored by major shareholders of listed companies.Due to the widespread existence of “one share dominance” in listed companies in China,and during the equity pledge period,the major shareholders still have a high proportion of voting rights and discourse power,which can have a decisive impact on the company’s operation and management.Therefore,the impact of major shareholders’ equity pledge on the company cannot be ignored.After the pledge of equity,on the one hand,the major shareholders face the risk of control transfer,and they may adopt market value management behavior that is not conducive to the long-term value of the company to maintain the stability of the stock price;on the other hand,the separation of two rights brought by equity pledge will also aggravate the tunneling motivation of major shareholders,increase the tunneling behavior,damage the interests of the company and minority shareholders,and then cause serious negative effects on the healthy development of the company and deteriorate the financial situation of the company.Therefore,in the context of the increasingly normalized equity pledge business of major shareholders,exploring its impact on the corporate financial risks is of great significance for improving the company’s ability to resist risks,facilitating long-term sustainable growth of the company and stabilizing the capital market.Based on this,this paper selects the sample data of A-share listed companies in China from 2013 to 2021,and empirically analyzes the impact mechanism of major shareholders’ equity pledge on the corporate financial risk,as well as the regulatory role of institutional investors’ shareholding ratio and the four major international audit institutions.The study found that:(1)The equity pledge behavior of major shareholders will significantly increase the corporate financial risk,and the higher the pledge ratio,the higher the corporate financial risk.(2)The tunneling and market value management after major shareholders’ equity pledge are the two mechanism factors that affect the corporate financial risk.That is,major shareholders’ equity pledge will increase the degree of tunneling and market value management,thus increasing the corporate financial risk.(3)The institutional investors’ shareholding ratio and the four major international audit institutions play a regulatory role in the process of major shareholders’ equity pledge affecting the corporate financial risk,which can weaken the positive correlation between the two.The conclusions of this paper still hold after using the instrumental variable method,changing the explained variable measurement method,changing the mediating variable measurement method and changing the robustness test of the parameter estimation model.The research contribution of this paper may lie in the following points: First of all,there is a lack of relevant research on the influence of major shareholders’ equity pledge on the corporate financial risk.This paper supplements and enriches the relevant research on the economic consequences of equity pledge and the influencing factors of corporate financial risk,and provides a reference for standardizing equity pledge business,preventing and resolving corporate financial risk.Secondly,the tunneling behavior and market value management behavior of major shareholders after equity pledge are included in the empirical test of the impact mechanism,prompting regulatory authorities and investors to pay attention to the behavior of major shareholders after equity pledge.Finally,external supervision subjects is innovatively introduced to study the moderating effect of institutional investors’ shareholding and high-quality audit institutions on the increase of corporate financial risk by equity pledge of major shareholder,which enriches the existing research.