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Share pledging and financial constraints in China

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Listed:
  • Zijian Cheng
  • Zhangxin (Frank) Liu
  • Yupu Sun

Abstract

We investigate the relationship between the intensity of share pledging activities and the level of financial constraint in publicly listed firms in China. We show that the high financial constraint level may motivate insiders to use share pledging as an alternative funding source and an expropriation mechanism. Although overall share collateralisation can cause a subsequently more constrained financing condition, we find evidence that share pledging made by the controlling shareholder is likely to mitigate financial constraints in the following year. Our findings are robust to alternative measures and an instrumental variable for dealing with endogeneity problems.

Suggested Citation

  • Zijian Cheng & Zhangxin (Frank) Liu & Yupu Sun, 2021. "Share pledging and financial constraints in China," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 61(3), pages 4147-4189, September.
    • Handle: RePEc:bla:acctfi:v:61:y:2021:i:3:p:4147-4189
    DOI: 10.1111/acfi.12729
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    References listed on IDEAS

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    Cited by:

    1. Gao, Yang & Ling, Yun & Peng, Hui, 2024. "Before thrive, first survive: The impact of controlling shareholder pledging on corporate ESG performance," Pacific-Basin Finance Journal, Elsevier, vol. 85(C).
    2. Jiang, Hui & Qian, Xiaolei & Ren, Daling & Peng, Cheng, 2024. "Tunneling motivation or legitimacy motivation? The impact of digital transformation on controlling shareholders' share pledging," Economic Analysis and Policy, Elsevier, vol. 82(C), pages 1204-1224.
    3. Shi, Yang & Li, Jiachen & Liu, Ruiming, 2023. "Financing constraints and share pledges: Evidence from the share pledge reform in China," Journal of Corporate Finance, Elsevier, vol. 78(C).
    4. Cheng Guo & Huang Rong & Zhaiting Yang & Stavros Sindakis & Sakshi Aggarwal, 2024. "Controlling Shareholder Pledges and Cost of Equity Capital: Analyzing Empirical Evidence from A-Share Listed Companies," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 15(2), pages 5914-5938, June.
    5. Jose, Amal & Bhaduri, Saumitra, 2024. "Promoter's share pledging and investment–The role of financial constraints," Finance Research Letters, Elsevier, vol. 62(PA).

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