Summary:
Equity pledge financing has become a prevalent method used by the shareholders of listed companies in China to pursue debt financing. In recent years, sharp declines in stock prices due to an equity pledge, resulting in the risk of debt default and significant losses for pledgees, have become increasingly common occurrences. Studies demonstrate the existence of moral hazard and adverse selection issues in the credit market. The occurrence of equity pledge financing hinges on the willingness of shareholders to pledge their equity for financing and the readiness of financial institutions to accept such equity pledges and provide financing. However, due to asymmetric information between pledgers and pledgees, financial institutions may be conservative when determining pledge rates, making it challenging to accurately assess the risk of a company's stock price collapse. This may lead financial institutions to set low pledge rates for stocks of “good companies,” causing pledgers to abandon transactions, and high pledge rates for stocks of “bad companies,” making pledgers more willing to accept transactions. In essence, a “lemon phenomenon” may exist in the equity pledge financing market due to information asymmetry. This phenomenon not only adversely affects the companies directly by increasing the risk of stock price collapse but also has spillover effects through the “association” of equity pledges. Regulating and guiding the healthy development of capital in accordance with the law, as well as preventing and resolving systemic financial risks, are important measures to promote high-quality economic development in China. Clarifying the issues arising from the lemon phenomenon in the credit market not only contributes to the literature on credit market information asymmetry and the factors influencing equity pledges, but it also provides valuable insights into mitigating the propagation of stock price collapse risk from the capital market to the credit market and the potential systemic financial risks. In this context, this paper focuses on Chinese listed companies from 1999 to 2019, using a large-sample regression method to empirically test the impact of stock price crash risk on shareholders' share pledge behavior. It finds that corporate stock price crash risk increases shareholders' share pledge transactions, indicating the presence of the information asymmetry issue whereby “bad money drives out good money” in pledged equity financing. The robustness tests confirm the reliability of the findings. Further research shows that the positive relationship between stock price crash risk and equity pledges is more pronounced in state-owned enterprises and companies with a larger scale, lower equity balance, and weaker growth, and that elevated stock price crash risk exacerbates the effect of equity pledges on increasing the risk of stock closure. This paper yields three key research innovations and contributions. First, it provides evidence of and enriches the literature on information asymmetry issues in the credit market and the factors influencing equity pledge transactions, both domestically and internationally. The literature on the factors affecting equity pledges is limited, lacking a focus on information asymmetry in the credit market. Second, this paper extends the examination of the economic consequences of stock price crash risk from the capital market to the credit market. In doing so, it expands the research on the economic consequences of a company's stock price crash risk and, based on the quasi-natural experiment of the Shanghai Stock Exchange's “Audit Committee Disclosure,” effectively alleviates endogeneity issues, thus strengthening the causal effect of a company's stock price crash risk on shareholders' equity pledges. The literature examining whether and how a company's stock price crash risk affects its financing behavior is scarce, and this paper discovers that the probability and extent of shareholders' equity pledge financing are positively affected by a company's stock price crash risk. This effect is more significant in state-owned companies, larger companies, companies with lower equity balance degrees, and companies with poor growth prospects. As stock price crash risk escalates, it exacerbates the negative impact of increased equity pledges on stock liquidation risk. Third, both the revealed information asymmetry issues and the lemon phenomenon in the equity pledge financing market have important policy implications and decision-making references. This paper not only provides empirical insights into optimizing financial equity pledge rates but also offers a decision-making basis on which regulatory authorities can formulate and improve the disclosure system for listed firms and accounting supervision policies in capital markets. Ultimately, it contributes to averting the transmission of stock price crash risk from the capital market to the credit market and preempting potential systemic financial risks.
许晓芳, 陆正飞. 股权质押融资存在“柠檬现象”吗？——来自股价崩盘风险的证据[J]. 金融研究, 2023, 522(12): 56-73.
XU Xiaofang, LU Zhengfei. Does Shareholder Equity Pledge Financing Give Rise to the “Lemon Phenomenon” in China？ Evidence Based on Stock Price Crash Risk. Journal of Financial Research, 2023, 522(12): 56-73.
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