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The relationship between share pledge and corporate performance: Does corporate governance matter?

Author

Listed:
  • Cheng, Teng Yuan
  • Susan, Enyang Besong
  • Lin, Hongxi
  • Luo, Dan

Abstract

This study investigates the impact of share pledge on corporate performance and the moderating effect of the corporate social responsibility-oriented governance mechanism (CSRG) on this relationship. Using a sample of China's listed firms from 2007 to 2016, we show that a standard deviation increase of one in share pledge is associated with a 0.6% decrease in a firm's corporate performance. In particular, the results suggest that CSRG mechanism is an effective tool to alleviate dwindling corporate performance triggered by the share pledge. We further identify the various channels by which share pledge through CSRG affect corporate performance. We find that the CSRG moderating effect is channeled through financial constraints and agency conflicts. These findings support arguments in the literature that, CSRG tools supplement the inefficiencies of management, hence, improving corporate performance for the good of all stakeholders.

Suggested Citation

  • Cheng, Teng Yuan & Susan, Enyang Besong & Lin, Hongxi & Luo, Dan, 2024. "The relationship between share pledge and corporate performance: Does corporate governance matter?," Research in International Business and Finance, Elsevier, vol. 69(C).
    • Handle: RePEc:eee:riibaf:v:69:y:2024:i:c:s0275531924000692
    DOI: 10.1016/j.ribaf.2024.102276
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    More about this item

    Keywords

    Share pledge; Corporate performance; Corporate social responsibility; Governance; Financial constraints;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets

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