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Managerial ownership pays off: Controlling shareholders' share pledging and corporate innovation quality in China

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  • Liu, Bei
  • Wang, Yuan
  • Yang, Lufei
  • Bian, Huabin

Abstract

In China, listed companies are characterized by high equity concentration, where controlling shareholders play a decisive role in corporate decision-making. This paper investigates the impact of controlling shareholders' share pledging on corporate innovation quality using A-share listed firms from 2010 to 2020. The findings reveal that equity pledging by controlling shareholders significantly suppresses corporate innovation quality, primarily through a reduction in R&D investment intensity. Furthermore, managerial ownership mitigates this negative effect, with a stronger moderating role in firms where the CEO and chairman roles are separated. The suppression effect is more pronounced in firms with weaker external governance, such as lower audit quality and less analyst coverage. The results highlight the interplay between internal and external governance in corporate innovation, offering insights for policymakers and investors on mitigating the risks of share pledging.

Suggested Citation

  • Liu, Bei & Wang, Yuan & Yang, Lufei & Bian, Huabin, 2025. "Managerial ownership pays off: Controlling shareholders' share pledging and corporate innovation quality in China," Pacific-Basin Finance Journal, Elsevier, vol. 93(C).
    • Handle: RePEc:eee:pacfin:v:93:y:2025:i:c:s0927538x25001933
    DOI: 10.1016/j.pacfin.2025.102856
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