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Insider stock pledging and stock price informativeness: Evidence from India

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  • Amanjot Singh

Abstract

Insiders’ shares can act as collateral while raising funds from lenders. This study examines the impact of insiders’ stock pledging activities on stock price informativeness using a sample of 1835 Indian firms. Our findings report that insider stock pledging increases the informational efficiency of stock prices. This informational efficiency increases for larger firms with: (1) financial constraints (high leverage and low cash holdings); (2) greater reliance on trade credit; and (3) higher indulgence in related party transactions. We also provide evidence on abnormal share turnover as a trading mechanism through which insider stock pledging is related to stock price informativeness. Our findings are robust across different specifications and after accounting for endogeneity issues.

Suggested Citation

  • Amanjot Singh, 2023. "Insider stock pledging and stock price informativeness: Evidence from India," Review of Financial Economics, John Wiley & Sons, vol. 41(1), pages 65-85, January.
    • Handle: RePEc:wly:revfec:v:41:y:2023:i:1:p:65-85
    DOI: 10.1002/rfe.1161
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