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The impact of foreign ownership on share pledging by controlling shareholders

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  • Tan, Wenqian
  • Zeng, Yanni
  • Zhang, Hao

Abstract

This study examines the effect of foreign ownership on share pledging by controlling shareholders in Chinese listed companies. Using manually collected data on foreign investors across 35 jurisdictions from 2009 to 2022, we find that foreign ownership significantly reduces both the likelihood and intensity of share pledging. Mechanism analyses indicate that foreign investors facilitate transmission of good governance practices, thereby mitigating insider opportunism. Moreover, the disciplinary role of foreign investors is more effective in firms with weak internal governance, consistent with a substitution rather than complementarity effect. Heterogeneity analyses reveal that this effect is more pronounced in non-state-owned enterprises, in firms located in regions with lower religious influence, and during periods of increased economic policy uncertainty. Overall, our findings highlight the role of foreign investors in mitigating agency conflicts and constraining controlling shareholders' opportunistic behavior in emerging markets.

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  • Tan, Wenqian & Zeng, Yanni & Zhang, Hao, 2025. "The impact of foreign ownership on share pledging by controlling shareholders," Pacific-Basin Finance Journal, Elsevier, vol. 94(C).
    • Handle: RePEc:eee:pacfin:v:94:y:2025:i:c:s0927538x25002483
    DOI: 10.1016/j.pacfin.2025.102911
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