Research On The Stock Repurchase Behavior Of Listed Companies Under The Background Of Equity Pledge By Controlling Shareholders

Equity pledge owns features of fast financing,low cost and flexible repayment time,so that it has been favored by many shareholders in corporations.However,equity pledge will not only send a signal of capital shortage to the public,but also make major shareholders face the risk of control transfer.Existing studies believe that when major shareholders face the risk of control transfer,companies will raise stock prices by many measures.And share buyback is also a kind of market cap management that can send a signal to the market that the stock price is undervalued,thus increasing the price.Because controlling shareholders have the right of control over the company,they have the ability to urge companies to carry out stock repurchase behavior to reduce their own risk.It can be noted that in recent years,many listed companies repurchase stock under the background of controlling shareholders’ equity pledge.From 2018 in China,stock prices continued to decline.China’s securities regulator has encouraged listed companies to reduce the downward pressure on their stock prices through stock buybacks by amending the Company Law,resulting in large-scale stock buybacks.The stock repurchase behavior of the listed company should be based on its own good cash flow situation,and itself will not improve the value of the listed company in the bad financial situation,the market value management function of the stock repurchase will lose,the value not only cannot be improved but also may decline.This will have bad effects on the small and mediumsized investors.This paper chooses Wanfeng Auto Wheel as the case company,which the rate of controlling shareholder’s equity pledge is high,to study and analyze the stock repurchase of three consecutive years since 2018,with the intention of providing suggestions for regulators,small and medium investors,banks and other related financial institutions.This paper summarizes the previous literature on equity pledge and share repurchase firstly,and combines the existing literature and relevant theoretical basis to conduct an in-depth theoretical analysis of the reason of repurchasing and the effects under the background of the equity pledge,and summarizes the mechanism of the influence of the equity pledge on repurchase.Then,Wanfeng Auto Wheel is selected as the case company,and the shareholding pledge of its controlling shareholder is analyzed in detail based on the industry situation,and the process and implementation results of the three stock repurchases are summarized.The case analysis is divided into two aspects: the difference of three repurchase behaviors and the impact on investors,which involves the use of event study method to analyze the market reaction after the stock repurchase events.Through research,it is found that:(1)In 2018,due to the decline of the automotive manufacturing industry and the overall economy,stock price dropped sharply.Due to its strong demand for funds for business expansion and fewer constraints on equity pledge financing,Wanfeng Auto Wheel’s controlling shareholders have frequently pledged equity to obtain funds since 2018.(2)The controlling shareholders of the listed company need and have to push the listed company to buy stock back when facing the risk of equity pledge.Controlling shareholders use their control right to promote the stock buyback to send positive signals to the market,prompting the stock price to rise in the short term,thus alleviating the risk of controlling shareholders’ liquidation and control transfer.(3)Wanfeng Auto Wheel,repurchases stock while having high percentage of equity pledge and its operating revenue declines year by year in spite of business expansion,and its solvency is lower than the average level of the industry.When judging the real motive of a company’s behaviors,it is necessary to combine the specific analysis of the company’s fundamentals.It is difficult to change the performance through share repurchase.To truly enhance the enterprise value,it needs to improve the internal governance of company.(4)After the buyback,the listed enterprise can get a short-term positive market reaction,but the stock price of the enterprises will still show a negative reaction,and even reduce the value of the enterprise.At last,this article draws two conclusions and gives some suggestions for supervision,small investors and related financial institution,which has positive significance for the continued development of our capital market.