Case Study On Equity Pledge Of Jiuzhitang’s Controlling Shareholder

With the vigorous development of China’s capital market,equity pledge by controlling shareholders is extremely common in capital market.Since the equity pledge procedure is simple and convenient,does not affect the control of the company by controlling shareholders,and the specific use of the funds obtained by the pledge is not mandatory disclosure to the public,which makes controlling shareholders prefer the equity pledge.However,due to the important position of the controlling shareholder in corporate governance structure,the behavior of its equity pledge will inevitably bring some influence to controlling shareholders themselves and the company.Therefore,for the company,investors,controlling shareholders and pledgees,it is worthy of our in-depth discussion on the equity pledge.According to the behavior of controlling shareholders after the equity pledge,to explore the motivation and analyze the impact and economic consequences on company,investors,controlling shareholders and pledgee.This paper has an important and practical significance for promoting the positive development of equity pledge environment,protecting the interests of investors in listed companies,and enhancing the supervision and management of regulatory agencies.Based on the existing literature at home and abroad,this paper takes Jiuzhitang Co.,LTD.(hereinafter referred to as "Jiuzhitang")as an example to analyze its equity pledge,investigates its motivation,and discusses its possible economic impact.Firstly,this paper introduces the basic information,development process,equity structure of Jiuzhitang Company,and then explores the basic background and characteristics of equity pledge of Jiuzhitang.Secondly,through the analysis of the stock pledge of Jiuzhitang,the investment and operation decisions of the controlling shareholders after the use of stock pledge financing are discussed,and it is concluded that the controlling shareholders of Jiuzhitang have investment needs and interests’ encroachment motives for the stock pledge.Thirdly,the economic consequences of pledge are discussed in detail from four aspects: short-term market effect,financial performance effect,corporate governance effect and the effect to stakeholders.Finally,the paper puts forward suggestions on how to make good play role of equity pledge from perspectives of supervision,listed companies,investors based on the research results.Through research and analysis,this paper draws the following conclusions:(1)The main motivation of the controlling shareholders of Jiuzhitang to pledge their shares is to construct and invest projects to support the development of the company,and to use related party transactions and guarantees to realize the benefit embezzlement.(2)The listed company implements a high proportion of equity pledge,although it can quickly raise funds,it will have an adverse impact on the listed company’s stocks in the short-term market.From the perspective of long-term market,Jiuzhitang’s financial situation gradually deteriorated,its profitability,debt repayment and growth ability have declined,which aggravated the separation of the two rights and induced the moral hazard of the controlling shareholders.(3)In view of encroachment of the interests of the controlling shareholders,the imperfect corporate governance and information leakage affects investors’ trust in the company,and the stock price continues to decline,as does the earnings per share,which hurts the interests of the pledgee and minority shareholders.Therefore,listed companies should rectify and improve their internal governance structures,and the state should improve the laws and regulations related to information leakage.This paper conducts a case study on the target company,aiming to understand the motivation behind the controlling shareholder’s behavior and analyze the economic consequences,so as to alert the listed company and help other stakeholders to avoid risks to a certain extent.