Controlling Shareholder’s Equity Pledge,Real Earnings Management And Stock Price Volatility

The equity pledge has the advantages of low financing cost,fast financing speed,few restrictions,simple operation and so on,which provides great convenience for enterprises to relieve the capital pressure,especially small and medium-sized enterprises,and is therefore favored by the controlling shareholders of listed companies.However,equity pledge will aggravate the volatility of stock price and bring risks that cannot be ignored while bringing financing convenience to controlling shareholders.When the price of the pledged stock falls sharply and the controlling shareholder is unable to supplement the pledge in time,the controlling shareholder will face the risk of forced liquidation or even loss of control.Therefore,after the occurrence of pledge,the controlling shareholders will have a strong motivation to manipulate earnings upward through market value management methods such as earnings management,in order to achieve the purpose of stabilizing the stock price and firmly mastering the control of the company.Due to the discount ratio of equity pledge is relatively low,the stock price of very few companies will reach the liquidation line under the condition of stable development of the stock market and no major events of the company.Therefore,it is rare for the controlling shareholders of listed companies to lose control because of equity pledge,and the situation of forced liquidation of pledged equity is also rare.Since 2018,China’s stock market has experienced a long period of negative decline,the macro economy has entered a new normal,and a large number of listed companies have poor performance.Among them,a large number of listed companies that have carried out equity pledge financing have burst their positions one after another,and the stock price fell to the liquidation line,in the stock market triggered a very serious chain reaction.Therefore,it is of great theoretical and practical significance to study the behavior of the controlling shareholder and the market reaction when the stock price reaches the liquidation line.This paper takes the data of A-share listed companies in China for a total of eight quarters from January 2018 to December 2019 as samples to study the relationship between equity pledge of controlling shareholders,real earnings management and stock price fluctuation when the stock price has not touched the liquidation line and when the stock price has touched the liquidation line respectively.The results show that :(1)The equity pledge of controlling shareholders is positively correlated with stock price fluctuation.(2)Real earnings management is negatively correlated with stock price volatility.(3)Real earnings management has a negative regulating effect on the equity pledge of controlling shareholders and stock price fluctuation.(4)For listed companies whose stock price has reached the level of liquidation,real earnings management no longer has a regulatory effect on equity pledge and stock price volatility.Through further research,it is found that among the three kinds of real earnings management,listed companies will use production manipulation and expense manipulation more to control stock price fluctuation.The main innovations of this paper are as follows :(1)Previous literature mainly studied the direct economic consequences of equity pledge,but few studies focused on the moderating effect of real earnings management on controlling shareholders’ equity pledges affecting stock price fluctuations.This paper analyzed the moderating effect of real earnings management on the relationship between the two.(2)Previous studies mainly discussed the behavior of controlling shareholders and the market reaction under the stable state of the market.Starting from the perspective of liquidating positions,this paper found a new way to study the economic consequences caused by equity pledge,which is helpful to enrich the relevant researches in the field of equity pledge.