A Comparative Study On The Increase Of Major Shareholders’ Holdings And “Risk-free” Shareholding Increasing Under The Background Of Equity Pledge

In recent years,equity pledging has become an important form of financing for listed companies,which is less costly and more efficient than traditional financing methods.However,if the percentage of shares pledged by the controlling shareholder is too high,it is likely to face the risk of being closed out in the event of a fall in the share price.If the pledged shares cannot be redeemed in a timely manner,the controlling shareholder will face the dilemma of a transfer of control.In response to these problems,companies may adopt a series of market value management tools to mitigate the risky nature of equity pledges,such as shareholding increases.This paper focuses on the motivations,mechanisms and comparative effects of shareholding increases by major shareholders and “risk-free”shareholding increases.The paper consists of six parts.In the main part,the literature on equity pledges and shareholding increases in China is reviewed,and the policy background and development status of equity pledges,shareholding increases by major shareholders and “risk-free” shareholding increases are summarized.In the specific case section,Shuangta Food,which has pledged its shares several times,is selected as the case company.Firstly,we introduce the basic situation of Shuangta Food and the current status of equity pledges,secondly,we analyse the implementation process of the two major shareholder increases and “risk-free”shareholding increases of Shuangta Food,and analyse the motivation of the major shareholder increases and “risk-free” shareholding increases of Shuangta Food,mainly for three reasons: The first is to alleviate the risk of equity pledges,the second is to boost the company’s share price,and the third is to serve as an incentive for employees.Finally,we analyse the differences in the application ratio,cost,risk and short-term and long-term market effects of shareholding increases by major shareholders and “risk-free” shareholding increases in the context of equity pledges,and draw conclusions.The short-term market effects are analysed using the event study method,which calculates the excess return and cumulative excess return of the shareholding increase and the underwriting increase,and then analyses the long-term market effects of the shareholding increase and the underwriting increase through the BHAR calculation and the corporate performance dimension.The long-term market effects of shareholding increases and “risk-free” shareholding increase are then analysed through BHAR calculations and corporate performance dimensions.The findings of this paper include the following three main points: Firstly,the mitigation of equity pledging risk is an important motivation for the increase in shareholdings by major shareholders and the “risk-free” shareholding increase,both of which are effective in mitigating the risk of high proportion of equity pledging,but their long-term effects are limited and cannot fundamentally solve the problems of enterprises.Secondly,there are differences in the application ratio,cost,risk,short-term and long-term market effects of shareholding increases by major shareholders and “risk-free” shareholding increases.Thirdly,the short-term market effects of shareholding increases by major shareholders and “risk-free”shareholding increases depend on when the actual action takes place,with the market already reacting quickly on the day the shareholding increase or “risk-free”shareholding increase by major shareholders begins,rather than waiting until the announcement is made.This paper has reviewed and analysed the process and effect mechanism of shareholding increases in the context of equity pledges,and has enriched the theoretical link between equity pledges and shareholding increases.Through the case study of Shuangta Food,the comparison between shareholding increase by major shareholders and “risk-free” shareholding increase is also presented,which helps companies to choose a better response strategy under different situations.Finally,the corresponding risk control measures and recommendations are proposed to provide guidance for other companies,which is of certain practical significance and provides new ideas and directions for listed companies in China to mitigate the risk of equity pledging and stabilise their control rights.