Research On The Influence Of Controlling Shareholder’s Equity Pledge On Firm Performance

In recent years,the equity pledge business has developed rapidly.It has the advantages of fast financing and low threshold.Therefore,it is widely favored by the controlling shareholders of listed companies and has become an important financing method for enterprises.The data shows that by the end of 2022,there were 2481 companies with equity pledges in China’s Shanghai and Shenzhen A-share markets,accounting for nearly 50%.The total market value of pledges is 3.2 trillion yuan,and the total number of pledges is 18200.Among them,6070 important shareholder equity pledges have reached the liquidation line,accounting for 33.35%.Equity pledge can effectively help the controlling shareholders to solve the financing problems,but there are also risks and defects.On the one hand,after equity pledge,the controlling shareholders are faced with the additional guarantee pressure caused by the decline of stock price and the risk of control transfer caused by compulsory closing,which strengthens the tunneling motivation of the controlling shareholders;On the other hand,equity pledge will send a negative signal about the company to the outside world.Creditors consider that the risk of equity pledge will require higher risk compensation,thus improving the financing difficulty and cost of enterprises,which will affect the production and operation of enterprises.Based on this,this paper mainly explores the impact of controlling shareholders’ equity pledges on firm performance and the mediating role played by controlling shareholders’ tunneling and debt financing costs in it.Besides,this paper also further studies the heterogeneity of the impact of equity pledge on firm performance under the conditions of different investment directions of pledge funds and whether the controlling shareholders pledge continuously.In terms of specific research,this paper first combs the domestic and foreign literature on equity pledge and firm performance;Secondly,on the basis of previous studies,the research hypothesis of this paper is put forward by combining the principal-agent theory,the private interest theory of control right and the signal transmission theory;Finally,the empirical test is carried out,taking the A-share listed companies in China’s Shanghai and Shenzhen stock markets from2004 to 2021 as samples,and the relevant assumptions are verified by multiple regression method and intermediary effect model.The research conclusions of this paper are as follows:(1)The equity pledge of controlling shareholders is negatively correlated with firm performance.With the increase of the equity pledge proportion of controlling shareholders,firm performance has significantly decreased.The above conclusion is still valid after the robustness test is conducted by the propensity-matching score method and the instrumental variable method.(2)The controlling shareholder’s tunneling plays a partial mediating effect between equity pledges and firm performance.Controlling shareholder’s equity pledges exacerbate shareholders’ tunneling,which in turn negatively affects firm performance.(3)The cost of debt financing plays a partial mediating effect between equity pledges and firm performance.Controlling shareholder’s equity pledges increase the cost of debt financing,which in turn has a negative impact on firm performance.(4)Heterogeneity analysis found that when the pledged funds are invested in the controlling shareholder or other third parties,the negative impact of equity pledge on firm performance is more significant;From the perspective of whether or not to continuously pledge,when controlling shareholders continuously pledge,the negative impact of equity pledge on firm performance is more significant.Finally,this paper presents relevant policy recommendations at three levels: firms,financial institutions and regulators,which provides possible references for research in the area of equity pledging and corporate performance.