Abstract: Referring to the hypothesis of“compensation justifying”, this paper believes that the controlling shareholders have the motive to conduct“value justifying”when they are trying to make equity pledge, i.e., in order to obtain higher financing, the controlling shareholder is motivated to assure the pledgee of the promising value of the pledged shares. The premium M&A is an effective way to increase market value, the measurement attribute of M&A goodwill represents the expected future value of the acquired assets. Does the controlling shareholder take advantage of the goodwill asset as a defense for equity pledge? The findings show that controlling shareholders are more likely to pledge their equity when the firm has good business reputation, business reputationis a justification for equity pledge. Especially in companies with poorer information environments, more powerful controlling shareholders and experiencing M&A of tunneling motivation, it is more common for controlling shareholders to use goodwill for equity pledge, and goodwill is more likely to be impaired in the future, indicating that controlling shareholders use goodwill as a false defense rather than a legitimate defense for equity pledge. The tests of internal demand, external environment, and pledged fund flow based on value defense also unanimously prove the above-mentioned pseudo defense behavior. In addition, compared to the bank pledgee, the securities firm pledgee has a lower level of risk prevention against the above-mentioned false defense behavior. The above conclusion indicates that the“double high”risks of“high goodwill”and“high pledge”are related to the arbitrage behavior of controlling shareholders, as well as the currentincomplete goodwill standards and equity pledge regulatory regulations. Therefore, while standardizing the principle of goodwillconfirming in mergers and acquisitions, it is particularly important to strengthen the prior supervision of equity pledge behaviors.

Key words: equitypledge, value justification, business reputation