Equity Pledge Research Articles

Do controlling shareholders' equity pledges affect M&A investment? Evidence from listed companies in China

As a new financing method, equity pledges are popular in China’s capital market. With the emergence of new financing models, will the relationship between financing and investment in corporate financial management change? The purpose of this study is to determine whether the controlling shareholders' equity pledges affect corporate merger and acquisition (M&A) investment decisions. This paper uses data for listed companies from the China Stock Market & Accounting Research (CSMAR) database, and Stata 17 is used as the data processing software. The M&A variable is virtual and uses the logit model to study the relationship between controlling shareholders' equity pledges and M&A investments. To test the robustness of the results, we replace the key variables, transform the model, and use the Gaussian Mixture Model (GMM) method to obtain the same results. The study found a positive correlation between controlling shareholders' equity pledges and M&A investments. Further cross-sectional study shows that the positive correlation is stronger in state-owned companies, non-manufacturing companies, and companies with low pledge ratios. This study is conducive to standardizing the equity pledge behavior of listed companies and safeguarding the interests of investors.

The positive impact of increased government bailout on weakening corporate default risk

Abstract Along with the increasing uncertainty of the global economy and the spread of the new crown pneumonia epidemic, the risk challenges to economic development have increased significantly, and the risk of corporate debt defaults has become more pronounced. As an important component of the capital market, the bond market also began to experience credit bond defaults during this period. Since 2021 the global bond market has shown a sharp increase in defaults, with the default rate of non-state enterprise bonds significantly higher than the overall market, and the capital market has also ushered in a period of pain and accelerated credit risk release. Enterprises are on the verge of bankruptcy restructuring and urgently need the government to provide a bailout and stabilize the market. Therefore, this paper uses the financial data of Chinese listed companies from 2016-2021, constructs a relief intensity variable using the equity pledge rate of listed companies before the relief (2021), and empirically analyzes the impact of local government relief and financing cost on the default risk of listed companies using an intensity double difference model. The results of this study show that: (1) local government bailout significantly reduces the default rate of listed companies by 13%; (2) the effect of local government bailout varies significantly depending on whether listed companies have connected transactions with financing platform companies, and the increase of bailout intensity increases the return on assets of listed companies with related transactions with financing platform companies by 9.8%, which laterally reduces the default rate of corporate debt; (3) the cost of financing is an important mechanism by which local government bailouts affect the credit default rate of listed companies, with a regression correlation of 0.75; (4) the above effect is more pronounced in regions with a higher degree of marketization, with a 9% increase in the effect. The findings of this paper are important for actively managing the risk of dual corporate debt and credit defaults and enhancing the effectiveness of macroeconomic regulation during the epidemic period.

Controlling shareholders' equity pledge, digital finance, and corporate digital transformation

Corporate digital transformation (CDT) is an inevitable choice for stimulating business vitality and cultivating market competitiveness. This paper focuses on the impact of controlling shareholders' equity pledge (CSEP) on CDT. Based on the theoretical background, an empirical analysis was conducted using data on listed corporations in China from 2011 to 2021. The results show that CSEP has an inverted U-shaped nonlinear impact on CDT. Meanwhile, digital finance plays a moderating role in the relationship between CSEP and CDT. At lower levels of digital finance development, the impact of CSEP on CDT remains inverted U-shaped. However, when digital finance reaches medium and higher levels of development, the impact of CSEP on CDT shows a linear promotion effect, and the higher this level, the stronger the promotion effect. Finally, from the perspective of share price collapse risk and controlling shareholders' appropriation behavior, we verify that the motives for preventing control transfer risk and appropriation are important reasons for the inverted U-shaped impact of CSEP on CDT.

Does equity pledge of major shareholders affect investment efficiency?

Using the data of China A-share listed companies from 2008 to 2020 as samples, this paper finds that major shareholders' equity pledge reduces the investment efficiency of the company, and the proportion of major shareholders' equity pledge to the total share capital is significantly negatively correlated with the investment efficiency of the company. In addition, when the company's external financing demand is small and the degree of marketization is low, the damage of major shareholders' equity pledge to investment efficiency is more and more obvious. The above evidence shows that the pledge of major shareholders' equity is a "self-interested tool" rather than a "value creation".

Do controlling shareholders collude with their related large shareholders? Evidence of equity pledges and shareholding increases from China

The key for controlling shareholders to prevent the risk of equity pledge is to increase the stock price, and the large shareholders' shareholding increases have the effect of increasing the stock price. Using the data of Chinese A-share firms from 2007 to 2019, this paper examines the relationship between the controlling shareholders' equity pledges and their related large shareholders' shareholding increases. We find that when the controlling shareholders pledge equity, their related large shareholders are more likely to increase their shareholdings. By analyzing the necessity, ability and motivation of related large shareholders to provide help, we find that shareholding increases of related large shareholders are behaviors of helping controlling shareholders to mitigate the risk of equity pledge. Based on the analysis of external acquisition threats, stability heterogeneity of control rights and exogenous impact of Vanke Equity Competition, it is shown that the controlling shareholders pledging equity promote their related large shareholders to increase their shareholdings for the purpose of preventing the risk of control transfer. In further analysis, we find that the shareholding increases of related large shareholders have the practical effect of improving the stock price and preventing pledge risks. This paper proves that the controlling shareholders pledging equity collude with their related large shareholders, which is reflected in the fact that the shareholding increases of the related large shareholders have become a means for controlling shareholders to prevent the risk of equity pledge.

Lessons and Future Directions for a Gender Equity Pledge Campaign.

In November 2019, the IWill gender equity pledge campaign called individuals in a health sciences university to make public pledges for gender equity and fostered meaningful dialog to alter mental models and power dynamics. Over 1400 staff, faculty, and students chose 1 of 18 pledges or created their own. A follow-up, mixed-methods survey was sent to 1405 participants in July 2020. Fifty-six percent (n = 769) responded. Over 70% endorsed fulfilling their pledge and believed they had the power to promote equity. Men were significantly more likely to endorse fulfilling their pledge, and men and learners endorsed having the power to create change at significantly higher rates than women. Key barriers included time, support for completion, and nonconducive culture or hierarchy. Key supports included personal reminders, self-reflection, and support from a partner, community, or leader. Top reasons for participation in the campaign included fairness or justice, being part of a community, team diversity as an inherent good, and the sense that the Medical College of Wisconsin's (MCW) should be a leader in gender equity. The IWill campaign successfully encouraged faculty, staff, and learners to reflect upon and engage in equity work. Key learnings included the need to streamline administrative support while building a sense of community around equity, and the further work needed to engage leaders and directly support not just individual but also departmental and institutional efforts in gender equity.

Research on the influence of major shareholder equity Pledge on enterprise risk taking

Equity pledge as a financing method in the financial market is widespread. The pledge of major shareholders' equity may bring risks to the enterprise's operation and market. Therefore, it is of great theoretical and practical significance to study the influence of equity pledge of major shareholders on corporate risk taking. On the one hand, the research of this project can enrich the theory of the influence of equity pledge of major shareholders on corporate risk taking; On the other hand, through the research on the impact of the pledge of major shareholders' equity on the enterprise's risk taking, the paper puts forward suggestions for better regulating the pledge of major shareholders' equity and improving the enterprise's risk-taking level.

The impact of digital finance on stock price crash risk: evidence from China

PurposeThe paper's purpose is to investigate the effects of digital finance on the risk of stock price crashes and the underlying transmission mechanisms, and to provide suggestions to inhibit the stock crash risk (CR).Design/methodology/approachThis paper selects all companies that were listed on the Shanghai Stock Exchange and the Shenzhen Stock Exchange from 2011 to 2020. It then uses the two-way fixed effect model and the intermediary effect model to verify such effects.FindingsThe overall outcomes demonstrate such a result that the CR of listed companies in China can be significantly reduced by the development of digital finance, and the overall transparency of business financial information and the equity pledge of controlling shareholders are the two underlying transmission mechanisms that digital finance can cause effects on the CR of stocks.Research limitations/implicationsThe main limitations are that there may exist some problems in the method for evaluating the CR of stocks. And there may be a problem of endogeneity caused by the empirical model cannot control all correlation variables.Practical implicationsThis paper would provide policy implications, for different roles, to inhibit the stock CR and to make the development of the economy more stabilize.Social implicationsDigital finance can promote economic development while restraining financial risks at the same time. Therefore, although this study is based on the relevant data from China, it can also provide a reference for other economies with different basic conditions from China, to promote the overall development of the world economy.Originality/valueThe current academic research on digital finance or stock price CR has been relatively sufficient, but there are few papers that combined both. By combining digital finance with stock CR, this paper researches the influence of digital finance on the CR of stocks through empirical analysis. So, this paper would provide new research ideas and evidence for potential influence factors of the CR of stocks, fill the gap in this research field and provide certain help for subsequent scholars to conduct relevant research.

Case Study of Audit Failure of Soling Shares

With the rapid development of the capital market, the competition of listed companies is intensifying, the pressure faced by enterprises is becoming more and more obvious, financial fraud is also emerging, and the problem of related party capital occupation is becoming increasingly prominent. The increasing number of financial frauds has not only reduced the fairness of capital markets, but also triggered a crisis of public confidence in the effectiveness of accounting firm audits. Therefore, how to audit the appropriation of funds by related parties and reduce audit failures is of research significance to the future audit work of accounting firms in China. Taking the failure of the audit of Soling shares as an example, this paper studies the failure of the audit of the use of equity pledge by the major shareholder and the failure of the audit of the appropriation of funds by related parties, analyzes the problems existing in the audit process of Ruihua Law Firm, and puts forward conclusions and suggestions based on the analysis.

Controlling Shareholders’ Equity Pledge, Financing Constraints and Corporate R&D Investment

In recent years, equity pledge has gradually become an emerging financing method for enterprises to solve financing difficulties, which has attracted the attention of many shareholders and financial institutions. As an important driving force for enterprises to carry out economic transformation and upgrading, innovation can also effectively enhance their core competitiveness in the same industry. This paper selects the data of China’s A-share ChiNext listed companies from 2013 to 2021 as the analysis object, and studies the impact of equity pledge and corporate R&D investment and the intermediary role played by financing constraints, and the results show that the equity pledge of controlling shareholders is significantly negatively correlated with corporate R&D investment, and the inhibition effect is more obvious with the increase of equity pledge ratio. In addition, this paper finds that financing constraints play a partial intermediary role in the relationship between controlling shareholders’ equity pledge and enterprise innovation. In response to this situation, this paper puts forward corresponding countermeasures and suggestions.

Controlling Shareholders' Equity Pledge, Inside Pledge Supervision, and Merger and Acquisition Decisions

In recent years, the pledge of stock rights is increasingly favored by shareholders.In this context, this paper studies the relationship between equity pledge and mergers and acquisitions under inside pledge supervision. Using the annual data of listed companies from 2007 to 2021, we find that inside pledge can inhibit the relationship between equity pledge and mergers and acquisitions. In addition, our endogeneity test is also robust.

Analysis of the Impact of Multiple Major Shareholders on Information Transparency: Based on the Perspective of Controlling Shareholders' Equity Pledge

Analysis of the Impact of Multiple Major Shareholders on Information Transparency: Based on the Perspective of Controlling Shareholders' Equity Pledge

Executive team heterogeneity and the moral hazard of equity pledging: Evidence from China

This study empirically examines the relationship between executive team heterogeneity and equity pledge moral hazard using data about Chinese A-share listed companies from 2010 to 2020. We find that increasing top management team heterogeneity (including financial background, overseas background, educational background, gender, and age) can significantly reduce equity pledge moral hazard, while also finding a moderating effect from executive compensation. Our research can help listed companies manage the moral hazards associated with equity pledges from the perspective of the executive team, such as personnel arrangements and compensation adjustments.

Separation of control and cash flow rights, ultimate controlling shareholders’ equity pledge ratio and risk of control transfer--evidence from Chinese A-share listed companies

ABSTRACT Listed companies with a higher separation of two rights have less risk of control transfer of the ultimate controlling shareholder. The ultimate controlling shareholder’s equity pledge ratio plays a remarkable mediating role in this process. At different pledge rates, the ultimate controlling shareholder’s equity pledge exhibits an ‘encroachment’ or ‘incentive’ effect on corporate governance, respectively, resulting in an inverted U-shaped relationship between equity pledge rate and the risk of control transfer. Company size has a heterogeneous effect on the risk of control transfer, while shareholding concentration has heterogeneous and single threshold impacts on this risk.

Does Margin Call Pressure Affect the M&A Decision of Controlling Shareholders With Equity Pledges: Evidence From Chinese Listed Company.

The equity pledge has become a universal practice in the world. Taking Chinese listed companies from 2007 to 2020 as a sample, this paper investigates the influence of controlling shareholders’ equity pledges on M&A behavior. It is found that the probability of M&A of listed companies is greater when the controlling shareholder has an equity pledge (or the proportion of equity pledge of controlling shareholder is higher). M&A activities can raise the stock price and play the role of market value management. Controlling shareholders with margin call pressure have stronger motivation to use M&A to increase their share price. Investors seem to be aware of this behavior and underestimate the potential benefits of M&A under this pressure. Propensity score matching (PSM) and difference in difference (DID) were used to test endogeneity and the results were still robust. Overall, our results reveal the impact of equity pledges by controlling shareholders on M&A. Furthermore, margin call pressure, this organizational psychology promotes this possibility.

Equity pledge of controlling shareholders, property right structure and enterprise innovation efficiency: evidence from Chinese firms

The innovation efficiency of an enterprise is subject to the behavior of the innovation subject, while the equity pledge behavior of the controlling shareholder not only brings convenience for innovation investment and financing, but also brings risks which has an impact on the innovation output of the enterprise. In this paper, we investigate how equity pledge of controlling shareholders affect the enterprise innovation efficiency using the data of China’s A-share listed companies from 2014 to 2020, and examine the effect of property right structure on the relationship between them from the two dimensions of equity nature and equity concentration. We find that equity pledge of controlling shareholders are signifcantly negatively related to innovation efficiency, meaning that equity pledge inhibits the innovation behavior of enterprises and reduces the innovation efficiency. We further provide evidence to show that the impediment effect of equity pledge of controlling shareholder on enterprise innovation efficiency is more pronounced in non-state-owned enterprises and decentralized equity enterprises. Moreover, our analysis shows that different equity concentration levels have different effects in the process of equity pledge affecting enterprise innovation efficiency and the effect of concentrated equity enterprises is lower than that of decentralized enterprises.

Controlling Shareholders’ Equity Pledge and Listed Companies’ Stock Repurchase

Based on the unbalanced panel data of China’s A‐share listed companies from 2013 to 2021, this paper empirically examines the influence of controlling shareholders’ equity pledge on the listed companies’ stock repurchase. It is found that listed companies will stabilize the share price through stock repurchase to prevent the risk of control right transfer due to stock price decline. There is a positive correlation between equity pledge and stock repurchase. Moreover, this positive correlation is more significant among nonstate‐owned listed companies and listed companies in the eastern region. Further research shows that the positive influence of equity pledge on stock repurchase is more significant under a good information environment and good corporate governance. However, the earnings management behavior of listed companies has no significant influence on the positive influence of equity pledge on stock repurchase.

Crisis Analysis and Prevention and Control of Financial Leverage Imbalance in Shareholder Equity Pledge Based on the DANP Model

ResearchBackground. The process of economic globalization is accelerating, and the financial risks that listed companies need to face are more complicated. Research Purpose. In order to clarify the impact of shareholder equity pledge on financial leverage imbalance crisis, research on the analysis and prevention of financial leverage imbalance crisis of shareholder equity pledge based on the DANP model is carried out. Research Method and Process. The DANP financial leverage imbalance early warning model is introduced to analyze the impact of shareholder equity pledge on financial leverage imbalance crisis by combining the financial leverage effect and potential risks of shareholder equity pledge, optimize the financial leverage imbalance early warning evaluation index system, preprocess the early warning evaluation indicators, determine the constant weight of each evaluation index, and obtain the final financial leverage imbalance crisis early warning evaluation value based on the determined constant weight. Research Results. The DANP model can accurately analyze the financial leverage imbalance crisis in the case of shareholder equity pledges, clarify the company’s financial status in the case of shareholder equity pledges, propose to standardize equity pledge behavior, improve the company’s internal control system in response to the crisis of shareholder equity pledge financial leverage imbalances, and improve the three prevention and control measures of the independent director system to enhance the ability of enterprises to resist the crisis of financial leverage imbalance.

Research on the Influence of Equity Pledge on Earnings Management :The Moderating Effect of Analysts' Attention

Research on the Influence of Equity Pledge on Earnings Management :The Moderating Effect of Analysts' Attention

Research on the Debt Default Risk of Guangyi Technology

In the process of production and operation, the funds held by enterprises often do not meet the needs of the expanding production scale, so enterprises usually obtain the required funds by borrowing. However, the financing mode of enterprises is not only limited to borrowing from banks or other financial institutions. With the rapid economic development and the continuous activity of the capital market, the bond market has gradually become an important channel for enterprise financing [1]. In order to improve the layout of the industrial chain, Guangyi Technology has carried out continuous mergers and acquisitions (M&A) since 2013. Due to its limited funds, Guangyi Technology acquired a large amount of funds required for M&A by means of equity pledge. However, the copyright cloud project invested in M&A in the early stage did not achieve the expected results, leading to a frequent breach of equity pledge, which evolved into debt defaults. Therefore, this article takes Guangyi Technology as the research subject and puts forward relevant avoidance suggestions through the evaluation of its debt default risk.