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Collateral damage: Evidence from share pledging in China

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  • Luo, Danglun
  • Piao, Zhirong
  • Wu, Cen
  • Zhang, Frank Feida

Abstract

This paper examines the effects of share pledging by controlling shareholders on tunneling. Using a sample of Chinese listed companies from 2004 to 2018, we find that share-pledging firms engage in more tunneling than non-share-pledging firms do. Our results are robust to alternative measures of tunneling, alternative estimation methods, and endogeneity checks using a difference-in-differences analysis. Moreover, we find that the positive association between share pledging and tunneling is more pronounced when firms' controlling shareholders have a stronger incentive to tunnel (e.g., firms with a greater wedge between cash flow rights and control rights) and when monitoring mechanisms are weak (e.g., firms with fewer analysts following or lower institutional holdings).

Suggested Citation

  • Luo, Danglun & Piao, Zhirong & Wu, Cen & Zhang, Frank Feida, 2024. "Collateral damage: Evidence from share pledging in China," International Review of Financial Analysis, Elsevier, vol. 93(C).
    • Handle: RePEc:eee:finana:v:93:y:2024:i:c:s1057521924001194
    DOI: 10.1016/j.irfa.2024.103187
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    More about this item

    Keywords

    Share pledging; Margin call; Tunneling;
    All these keywords.

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General

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