Equity Pledge,New Rules Of Pledge And Market Reaction

With the development of China’s capital market,equity pledge has become the main way for controlling shareholders to obtain funds.In recent years,the power and scale of equity pledge are increasing,and the frequency of equity pledge is also increasing.Equity pledge is like a double-edged sword for controlling shareholders.It can not only create financing convenience for major shareholders,but also bring potential financial risks to enterprises,small and medium investors and even the entire domestic capital market.Therefore,it has aroused extensive attention in the academic circle.According to the development process of equity pledge in China in recent years,the rise and fall of equity market not only directly affects the development of equity pledge transaction,but also affects the market’s attitude towards this kind of financing behavior.High-quality companies can improve their own business development and increase stock prices through pledge financing,so as to benefit investors.However,some listed companies also reduce their own profits in the name of pledge financing and damage investors’ rights and interests.With the rapid growth and growing scale of the domestic equity pledge market,the risk caused by stock price fluctuations has become increasingly prominent.In order to avoid the risk of stock price fluctuations caused by pledge,the Shanghai Stock Exchange and China Securities Deposit&Clearing Co.,Ltd.officially implemented the Measures on Equity Pledge Repurchase Transactions and Registration and Settlement Business(2018 Revision)on March 12,2018.In response to this market change.The new regulation requires that the pledged shares cannot exceed 50% of the total shares of the company,which may have some impact on the current equity pledge market.No matter the secondary market investors,the controlling shareholders of listed companies or the regulators responsible for maintaining market stability,they need to have a fuller understanding of the risks that may arise from the equity pledge activities of the controlling shareholders.Therefore,the main focus of this paper is to study how the market reacts to the equity pledge of the controlling shareholder.Will it have a positive or negative impact on market reaction?And whether the new regulation of pledge has played a role in stabilizing stock prices?Based on the research of relevant literature and theoretical analysis,this paper combines the event study method,propensity score matching(PSM)and DID to carry out the research.Firstly,this paper introduces propensity score matching(PSM),and explains the data selection,empirical model construction and corresponding variable selection used in the process of PSM.By using event study method and PSM-DID model,this paper deeply explores the net impact of New Regulation on pledge announcement of controlling shareholders,so as to evaluate its policy effect.The results show that when the controlling shareholder carries out the equity pledge transaction and issues the pledge notice,the financial market will have a significant reaction to it and regard it as adverse information,resulting in negative excess rate of return.In order to better understand the effect of the policy measures of "New Regulation on Pledge",this paper firstly applied the event study method to compare the cumulative excess rate of return of sample enterprises before and after the policy measures.The results found that after the implementation of "New Regulation on Pledge",the excess rate of sample enterprises was significantly higher than that before the policy measures,and the PSM-DID model also reached the same conclusion.The empirical results show that the New Regulation on Pledge has a positive impact.It effectively reduces the negative excess return brought by the announcement of pledge of equity,thus stabilizing the equity market and effectively suppressing the volatility of the equity return rate.This paper aims to explore the characteristics and verification results of equity pledge in China’s capital market,and give three policies and measures: improve information disclosure,especially increase the financial data disclosure closely related to the risk of control transfer and leveraged operation,and strengthen the continuous supervision and management of disclosure;Improve the responsibility consciousness of the subject of pledge,and strictly regulate the company;We will improve the risk control system of financial markets and further optimize the trading ecology of domestic equity markets.