Summary:
In recent years, controlling shareholders have increased their holdings of the company's stocks. Most controlling shareholders claim that they increased their shares because they are confident in the company's trajectory and optimistic about its future prospects. However, studies have found that many controlling shareholders increased their holdings following an equity pledge. Why are controlling shareholders keen to increase their holdings after an equity pledge？ Do holdings under different backgrounds send different signals？ How does the market interpret the signals？ Traditional signal theory claims that an increase in the controlling shareholders' holdings transmits signals about the company's fundamentals and future development. Rational investors will use the signal to judge the company's value. They will believe that the current stock price deviates from the intrinsic value, which is considered the signal transmission effect. According to behavioral finance studies, investors have bounded rationality: their decision-making process has reference point dependence and representative deviation. A traditional signal transmission becomes a behavioral signal when the investor habituates the traditional signal. The behavioral signal is essentially a signal, but it does not reflect the company's fundamentals. Rather, it influences the investor's decision-making through their judgment of behavioral habits, resulting in the signal transmission effect. This paper argues that the increase in holdings under equity pledge is a behavioral signal, and the controlling shareholders have a motive to use the behavioral signal effect from an increase in holdings to stabilize the stock price, thus mitigating the risk of the equity pledge. This study empirically tests a sample of A-share listed companies from 2008 to 2017 and finds that controlling shareholders are more inclined to increase shareholdings under an equity pledge. Their inclination strengthens with the increase in pledge rate, indicating that the controlling shareholder's increase in holdings is an attempt to alleviate liquidation pressure and prevent the transfer of control.In the short term, there is no significant difference in the degree of positive market reaction between the non-pledged group and the pledged group. In the long run, the long-term stock price and the pledged group's operating performance after the increase in holdings are weaker than the control group. The non-pledged group is better than the control group, indicating that the increase in holdings under the pledge of equity is not a value signal but a behavioral signal. Further analysis reveals that the positive effect of the equity pledge on the increase in holdings is more pronounced in companies with high liquidation pressure, low-quality companies, and underdeveloped areas with loose regulatory environments. This finding proves that controlling shareholders increase their holdings under an equity pledge to alleviate liquidation pressure. Expansion tests show that a controlling shareholder under an equity pledge is more inclined to net increase in holdings after considering the impact of a reduction in shareholding. It also shows that management and other major shareholders cater to the controlling shareholder's increase in holdings. Finally, this article excludes the hypothesis of value underestimation, the hypothesis of political motivation, the hypothesis of enhanced control, and the hypothesis of overconfidence as alternative explanations. This study makes three main contributions to the literature. First, this article deepens the research in the field of equity pledge. It connects the equity pledge with controlling shareholders and insider transactions and finds that the controlling shareholder under the equity pledge is motivated to alleviate the risk of a control transfer by increasing their holding. It also expands the perspective of equity pledge research. Second, this article provides new evidence from China for behavioral corporate finance research. From the perspective of behavioral signals, this article finds that the controlling shareholder's behavior is an attempt to leveragethe representative deviation of investor psychology. By sending behavioral signals, the stock price will rise in the short term, alleviating the risk of control transfer. Third, this article's conclusions have some policy implications. For the regulatory authorities, it is necessary to further improve the shareholder increase system and the equity pledge information disclosure system, and strengthen the supervision of controlling shareholder increases under equity pledges.
徐龙炳, 汪斌. 股权质押下的控股股东增持:“价值信号”还是“行为信号”？[J]. 金融研究, 2021, 487(1): 188-206.
XU Longbing, WANG Bin. Increased Holdings of Controlling Shareholders Under Equity Pledge: Value Signal or Behavioral Signal？. Journal of Financial Research, 2021, 487(1): 188-206.
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