Controlling Shareholder Equity Pledges And Corporate Inefficient Investment

Along with China’s multi-year supply-side reform and the implementation of the registration system,the size of China’s equity pledge market has increased significantly.However,the expansion of equity pledges has been accompanied by many potential economic consequences,which will affect the company’s production and operation on the one hand.At the same time,it will also affect the company’s investment decision-making and efficiency,and then even affect the operation effect of the entire capital market.The controlling shareholder may lose control when the share price drops below the closing line.The incentive mechanism of the controlling shareholder will be shifted,so that it no longer takes the best interests of the enterprise as the starting point,but turns to pursue its own interests,thereby increasing the agency cost of the company and reducing the investment efficiency of the enterprise.In securities trading,corporate financial information is the most important part of the securities market,which directly affects investors’ decision-making.Highquality accounting information can reduce information asymmetry and agency conflicts in order to improve investor confidence as well as lessen financing difficulties.As a result,starting from the specific role of the controlling shareholder,the article studies the impact of the controlling shareholder’s equity pledge on its investment efficiency,and then analyzes its regulatory effect on the two.On the basis of summarizing the relevant literature at home and abroad,this paper combs the basic ideas of the paper from the existing asymmetric theory,principal-agent theory,signal theory and other theories,and puts forward relevant hypotheses combined with the existing theories.Secondly,the paper selects China’s Shanghai and Shenzhen A-share companies from 2009 to 2020 as a sample,uses Richardson’s 2006 investment efficiency measurement method,and divides the sample into three samples: full sample,over-investment,and under-investment to test the model of this paper.In addition,the article also evaluates the financial information of listed companies from two aspects of content preparation and disclosure,and incorporates it into the moderating variable,and conducts research on the relationship of controlling shareholders’ stock pledge and company’s investment efficiency.Finally,the regression analysis revealed a correlation between the controlling shareholder’s equity pledge and the firm’s investment efficiency under different firm attributes,as well as a mediating role played by Type II agency costs.The study found that:(1)equity pledging by controlling shareholders exacerbates inefficient investment and over-investment or under-investment in listed companies;(2)improved accounting robustness inhibits inefficient investment as well as over-investment and under-investment due to equity pledging by controlling shareholders;(3)the higher the quality of information disclosure,the more likely it is that listed companies with equity pledging by controlling shareholders will engage in inefficient investment,over-investment and under-investment;(4)Non-stateowned enterprises have a greater inhibiting effect on the efficiency of corporate investment than state-owned enterprises due to the pledge of controlling shareholders’ equity;(5)The second category of agency costs plays a part in mediating the impact of controlling shareholder equity pledges on inefficient corporate investment.Based on the results of the empirical study,this paper proposes measures to improve the laws and regulations on pledging,limit the ratio of pledging and the flow of pledged funds to enterprises,enhance the quality of corporate accounting information to enhance the transparency of corporate information,and reduce agency costs for relevant government departments,small and medium-sized investors,and enterprises themselves.This paper,not only improves the literature related to equity pledges and corporate investment efficiency,but also has some significance for policy makers to improve the legal play of equity pledges and related accounting information system,internal supervision mechanism of enterprises,and investors’ investment decision judgment.