Equity Pledge of the Largest Shareholder, Goodwill on Merger and Acquisition and the Risk of Stock Price Collapse

Abstract

AbstractThe high proportion of equity pledge of the largest shareholder of listed companies has an important impact on the external capital market. Based on the sample of Shanghai and Shenzhen A-share listed companies in China from the first quarter of 2015 to the fourth quarter of 2018, this paper examines whether the equity pledge of the largest shareholder of listed companies will aggravate the risk of stock price collapse in the future and the transmission mechanism. This paper shows that the increase of the proportion of equity pledge of the largest shareholder will significantly aggravate the risk of stock price collapse in the future, and the positive relationship between the equity pledge of the largest shareholder and the risk of stock price collapse is mainly reflected in the companies with higher stock price bubble and poorer internal control. After further analysis of the transmission mechanism, it is found that the high goodwill on M & A caused by the high proportion of equity pledge of the largest shareholder is an important way to affect the risk of stock price collapse. The regression results of replacing key variables and PSM show that the conclusion in this paper is robust. This study provides an important basis for the classified supervision of the largest shareholder and the investment decisions of external investors.KeywordsThe equity pledge of the largest shareholderGoodwill on M & AThe risk of stock price collapse