IDEAS home Printed from https://ideas.repec.org/a/eee/bushor/v68y2025i1p95-108.html
   My bibliography  Save this article

Pledging of shares by controlling shareholders and implications for foreign institutional investors

Author

Listed:
  • Bang, Nupur Pavan
  • Bhatia, Nandil
  • Ray, Sougata
  • Ramachandran, Kavil

Abstract

Offering shares as collateral—that is, share pledging—to avail business or personal loans has increasingly been used as a financing tool by controlling shareholders in developing economies such as India. With the focus on protecting the rights of minority shareholders, pledging of shares has been subject to scrutiny as academicians, regulators, and corporate governance experts have highlighted the detrimental effects of share pledging on the firm. This study raises awareness about share pledging for uninitiated foreign institutional investors (FIIs) looking to invest in developing economies. The study highlights the conditions, including motivation to pledge, degree of ownership, and quantum of pledge, under which share pledging may be appropriate and when it may benefit the FIIs. We distinguish between pledging under different conditions and the implications arising under the outlined scenarios for FIIs. Our analysis provides potential investors with a comprehensive overview of pledging and of its possible consequences for the firm. The study urges investors to take a more nuanced view of pledging rather than painting all of it with the same negative stroke.

Suggested Citation

  • Bang, Nupur Pavan & Bhatia, Nandil & Ray, Sougata & Ramachandran, Kavil, 2025. "Pledging of shares by controlling shareholders and implications for foreign institutional investors," Business Horizons, Elsevier, vol. 68(1), pages 95-108.
    • Handle: RePEc:eee:bushor:v:68:y:2025:i:1:p:95-108
    DOI: 10.1016/j.bushor.2024.02.009
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0007681324000235
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.bushor.2024.02.009?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:bushor:v:68:y:2025:i:1:p:95-108. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/bushor .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.