IDEAS home Printed from https://ideas.repec.org/a/eee/ecanpo/v87y2025icp1630-1652.html

Major shareholders' equity pledge and the “All talk and no action” strategy in digital transformation

Author

Listed:
  • Zhou, Hui

Abstract

Based on data from Chinese-listed companies, this study examines the impact of major shareholders' equity pledges on firms' "all talk and no action" strategies in digital transformation, with increased disclosure of digital transformation information but limited actions in digital transformation. It finds that equity pledges induce the "all talk and no action" strategy. Mechanism tests reveal that major shareholders with pledged equity pursue this strategy to mitigate risks of control transfer. This effect is more pronounced for companies with higher investor attention, and practical difficulties related to digital transformation, but extensive media coverage and institutional oversight (shareholding and site visits) can mitigate such an effect. Additionally, there is no significant difference in the short-term valuation levels between companies with equity pledges and those without when the level of digital transformation disclosure is similar. Thus, investors do not perceive a significant difference in digital transformation disclosures between companies with and without equity pledges. However, the strategy of "all talk and no action" diminishes long-term performance and increases stock price crash risk, especially for companies with equity pledges.

Suggested Citation

  • Zhou, Hui, 2025. "Major shareholders' equity pledge and the “All talk and no action” strategy in digital transformation," Economic Analysis and Policy, Elsevier, vol. 87(C), pages 1630-1652.
    • Handle: RePEc:eee:ecanpo:v:87:y:2025:i:c:p:1630-1652
    DOI: 10.1016/j.eap.2025.07.036
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0313592625003091
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.eap.2025.07.036?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to

    for a different version of it.

    References listed on IDEAS

    as
    1. Qian Xu & Qun Cao & Liyan Wang, 2025. "Digital inclusive finance and digital transformation of Chinese enterprises: Perspectives on company technology intensity and financialization," Economics and Politics, Wiley Blackwell, vol. 37(1), pages 442-486, March.
    2. Michael Puleo & Michael McDonald & Steven Kozlowski, 2021. "Share‐pledging and the cost of debt," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 61(1), pages 1047-1079, March.
    3. Yogesh Chauhan & Ajay Kumar Mishra & Ronald W. Spahr, 2021. "Stock pledging and firm risk: Evidence from India," Financial Management, Financial Management Association International, vol. 50(1), pages 261-280, March.
    4. Li, Shengnan & Zheng, Xinya & Niu, Jianbo & Ma, Xuan, 2024. "Share pledging of controlling shareholders and corporate social responsibility disclosure," Research in International Business and Finance, Elsevier, vol. 67(PA).
    5. Cai, Cen & Tu, Yongqian & Li, Zhi, 2023. "Enterprise digital transformation and ESG performance," Finance Research Letters, Elsevier, vol. 58(PD).
    6. Yoshida, Kenichi & Iino, Yoshiaki & Managi, Shunsuke, 2022. "Do Japanese keiretsu promote better CSR activities?," Economic Analysis and Policy, Elsevier, vol. 76(C), pages 452-475.
    7. Yubin Wu & Fu’an Shi & Yongyu Wang, 2024. "Driving Impact of Digital Transformation on Total Factor Productivity of Corporations: The Mediating Effect of Green Technology Innovation," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 60(5), pages 950-966, April.
    8. Chen, Zhongdong & Craig, Karen Ann, 2023. "Active attention, retail investor base, and stock returns," Journal of Behavioral and Experimental Finance, Elsevier, vol. 39(C).
    9. Alexander Dyck & Natalya Volchkova & Luigi Zingales, 2008. "The Corporate Governance Role of the Media: Evidence from Russia," Journal of Finance, American Finance Association, vol. 63(3), pages 1093-1135, June.
    10. Cui, Lin & Wang, Yanshu, 2023. "Can corporate digital transformation alleviate financial distress?," Finance Research Letters, Elsevier, vol. 55(PB).
    11. Wu, Qinqin & Xie, Tingting & Lu, Jing, 2025. "Does institutional investors’ environmental attention influence corporate environmental investment?," Economic Analysis and Policy, Elsevier, vol. 85(C), pages 1625-1644.
    12. Chengcheng Li & Xiaoqiong Wang & Feifei Zhu, 2024. "Does share pledging impair stakeholder welfare? Evidence based on corporate social responsibility," Review of Quantitative Finance and Accounting, Springer, vol. 63(4), pages 1155-1192, November.
    13. Jose, Amal & Bhaduri, Saumitra, 2024. "Promoter's share pledging and investment–The role of financial constraints," Finance Research Letters, Elsevier, vol. 62(PA).
    14. Lieselot Danneels & Stijn Viaene, 2022. "Identifying Digital Transformation Paradoxes," Business & Information Systems Engineering: The International Journal of WIRTSCHAFTSINFORMATIK, Springer;Gesellschaft für Informatik e.V. (GI), vol. 64(4), pages 483-500, August.
    15. Zhang, Li & Song, Xinwei, 2025. "Managerial overconfidence and corporate digital transformation," Finance Research Letters, Elsevier, vol. 75(C).
    16. Shen, Haomin & Cheng, Xiaoke & Ouyang, Caiyue & Li, Ya & Chan, Kam C., 2022. "Does share pledging affect firms' use of derivatives? Evidence from China," Emerging Markets Review, Elsevier, vol. 50(C).
    17. Zhuo, Chengfeng & Chen, Jin, 2023. "Can digital transformation overcome the enterprise innovation dilemma: Effect, mechanism and effective boundary," Technological Forecasting and Social Change, Elsevier, vol. 190(C).
    18. Edward L. Glaeser & Bruce Sacerdote & José A. Scheinkman, 1996. "Crime and Social Interactions," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 111(2), pages 507-548.
    19. Xuejun Jin & Xiao Pan, 2023. "Government Attention, Market Competition and Firm Digital Transformation," Sustainability, MDPI, vol. 15(11), pages 1-27, June.
    20. Xin Wang & Jiacai Xiong & Jitao Ou, 2022. "Does Share Pledging Affect Management Earnings Forecasts?," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 58(2), pages 512-524, January.
    21. Zhuo Cheng & Tajul Ariffin Masron, 2023. "Economic policy uncertainty and corporate digital transformation: evidence from China," Applied Economics, Taylor & Francis Journals, vol. 55(40), pages 4625-4641, August.
    22. Zhang, Yue & Ge, Mengshuai & Yang, Jiaju & Liu, Cuiying & Chen, Xi, 2023. "Controlling shareholders' equity pledge, digital finance, and corporate digital transformation," International Review of Financial Analysis, Elsevier, vol. 90(C).
    23. Wanlong Zhao & Wei Zhang & Xiong Xiong & Gaofeng Zou, 2019. "Share pledges, tone of earnings communication conferences, and market reaction: evidence from China," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 59(5), pages 2817-2853, December.
    24. Xu, Jingjing & Huang, Haijie, 2021. "Pay more or pay less? The impact of controlling shareholders' share pledging on firms' dividend payouts," Pacific-Basin Finance Journal, Elsevier, vol. 65(C).
    25. Malmendier, Ulrike & Tate, Geoffrey, 2008. "Who makes acquisitions? CEO overconfidence and the market's reaction," Journal of Financial Economics, Elsevier, vol. 89(1), pages 20-43, July.
    26. Chan, Konan & Chen, Hung-Kun & Hu, Shing-yang & Liu, Yu-Jane, 2018. "Share pledges and margin call pressure," Journal of Corporate Finance, Elsevier, vol. 52(C), pages 96-117.
    27. Rhodes-Kropf, Matthew & Robinson, David T. & Viswanathan, S., 2005. "Valuation waves and merger activity: The empirical evidence," Journal of Financial Economics, Elsevier, vol. 77(3), pages 561-603, September.
    28. He, Bingquan & Gan, Lu, 2025. "Exploring the synergistic effect of CEO power and technological expertise in driving corporate digital transformation," International Review of Financial Analysis, Elsevier, vol. 98(C).
    29. Hao, Chen & Lixia, Wu, 2023. "Does equity pledge of major shareholders affect investment efficiency?," Finance Research Letters, Elsevier, vol. 58(PA).
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Guo, Qin & Zhao, Yuanping, 2025. "The influence mechanism of controlling shareholders' equity pledges on corporate risk-taking," Finance Research Letters, Elsevier, vol. 82(C).
    2. Ghosh, Arpita, 2025. "Influence of share pledging on corporate social responsibility: Evidence from India," Research in International Business and Finance, Elsevier, vol. 77(PA).
    3. 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.
    4. Zhou, Jingting & Li, Wanli & Yan, Ziqiao & Lyu, Huaili, 2021. "Controlling shareholder share pledging and stock price crash risk: Evidence from China," International Review of Financial Analysis, Elsevier, vol. 77(C).
    5. Kryzanowski, Lawrence & Li, Mingyang & Xu, Sheng & Zhang, Jie, 2025. "Share pledging and corporate misconduct," The British Accounting Review, Elsevier, vol. 57(3).
    6. Wang, Mingwei & Zhang, Junping & Liang, Decui, 2024. "Multi-period share pledging with sequential three-way proportion decision," Omega, Elsevier, vol. 127(C).
    7. Zhang, Hao & Jin, Tian & Chen, Hanbin, 2023. "Do controlling shareholders collude with their related large shareholders? Evidence of equity pledges and shareholding increases from China," International Review of Financial Analysis, Elsevier, vol. 89(C).
    8. Junping Zhang & Ping Li, 2024. "Share pledging: Measuring margin call pressure and its influence on liquidity commonality," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 45(6), pages 3897-3914, September.
    9. Huizhong Lu & Zohaib Zahid & Jijian Zhang & Fakhar Shahzad & Furman Ali, 2025. "Is Innovation-Related Textual Information True? Insight from Equity Pledging Behavior in Chinese A-Share Listed Firms," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 16(4), pages 14644-14686, October.
    10. Liu, Wei & Tian, Gary Gang, 2022. "Controlling shareholder share pledging and the cost of equity capital: Evidence from China," The British Accounting Review, Elsevier, vol. 54(6).
    11. Hsin-han Shen, Carl & Zhang, Hao, 2025. "Share pledging of insiders and corporate debt contracting," Journal of Banking & Finance, Elsevier, vol. 181(C).
    12. Chen, Xi & Wang, Qinggang & Wang, Shuai, 2025. "Enterprise digital transformation and bank credit loans—Empirical evidence from listed companies in China," Pacific-Basin Finance Journal, Elsevier, vol. 90(C).
    13. Fralich, Russell & Ahmadsimab, Alireza & Betschinger, Marie-Ann, 2025. "Liability of not being known: CEO media visibility and acquisition timing in acquisition waves," Journal of Business Research, Elsevier, vol. 200(C).
    14. Li, Shaofang & Tian, Sihua & Gu, Qinen, 2025. "Share pledging and non-financial corporations’ systemic risk contribution: Evidence from China," Research in International Business and Finance, Elsevier, vol. 73(PA).
    15. Li, Shengnan & Zheng, Xinya & Niu, Jianbo & Ma, Xuan, 2024. "Share pledging of controlling shareholders and corporate social responsibility disclosure," Research in International Business and Finance, Elsevier, vol. 67(PA).
    16. Zhang, Huili & Huang, Yibo & Zou, Zhiwei, 2024. "Does share pledging affect corporate sustainability performance? Empirical evidence from an emerging market," Emerging Markets Review, Elsevier, vol. 63(C).
    17. Xiao, MingFang & Cao, June & Chiang, Yao-Min, 2022. "Kiss the baby for the nurse's sake? - Guaranteeing employees' stock purchase against loss program," International Review of Financial Analysis, Elsevier, vol. 81(C).
    18. Zuo, Yu & Bai, Tao, 2024. "Major shareholder equity pledges and the risk of stock price crash based on external audit quality," Finance Research Letters, Elsevier, vol. 63(C).
    19. Li, Manman & Qi, Luguang, 2025. "Controlling shareholder equity pledging and tone management: Evidence from China," Research in International Business and Finance, Elsevier, vol. 74(C).
    20. Ding, Jiantao & Yin, Yingkai & Kuang, Jinsong & Ding, Dezhi & Madsen, Dag.Øivind & Yang, Kunyu, 2024. "The impact of enterprise digital transformation on financial mismatch: Empirical evidence from listed companies in China," Finance Research Letters, Elsevier, vol. 66(C).

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;

    JEL classification:

    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:ecanpo:v:87:y:2025:i:c:p:1630-1652. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.journals.elsevier.com/economic-analysis-and-policy .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.