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Equity pledge and controlling shareholders’ over-appointing of directors

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  • Zhou, Lei
  • Wei, Feng

Abstract

This paper investigates the effect of equity pledge on controlling shareholders' over-appointing of directors. We find that the percentage of shares pledged by the controlling shareholder is positively related to the possibility and the percentage of controlling shareholders' over-appointing of directors, and this positive relationship is less pronounced for SOEs. We then provide evidence to show that the positive effect of equity pledge on controlling shareholders' over-appointing of directors is due to controlling shareholders' desire to reduce the risk of control transfer and to enjoy the private benefits of control. Finally, we find that as the percentage of shares pledged increases, controlling shareholders’ over-appointing of directors leads to higher stock price crash risk and lower firm value in the long run.

Suggested Citation

  • Zhou, Lei & Wei, Feng, 2025. "Equity pledge and controlling shareholders’ over-appointing of directors," International Review of Economics & Finance, Elsevier, vol. 101(C).
    • Handle: RePEc:eee:reveco:v:101:y:2025:i:c:s1059056025002485
    DOI: 10.1016/j.iref.2025.104085
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    More about this item

    Keywords

    Equity pledge; Over-appointing directors; Controlling shareholders; The risk of control transfer; Private benefits of control;
    All these keywords.

    JEL classification:

    • M14 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Corporate Culture; Diversity; Social Responsibility
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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