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Research on the influence of equity pledge on stock price crash risk: based on financial shock of 2015 stock market crisis

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  • Rong Xu
  • Jialu Chang
  • Conggang Li
  • Wenlan Wang

Abstract

The 2015 Chinese stock market crisis triggered liquidation because of equity pledge so that the leverage effect of the small probability event with severe results got intensive attention from investors. It is found that the effects of equity pledge on stock price crash risk reversed significantly before and after the 2015 stock market crisis. In the mechanism analysis, we further find that the equity pledge influenced the stock price crash risk by longer suspension and greater price fluctuation. The shareholding ratio of institutional investors and information environment also had a significant moderating effect on the influence of equity pledge on stock price crash risk. Alternative interpretation tests excluded the tunnel effect and pressure effect by shareholders and incentive effect by management. This study by analysing empirical data provides evidence on the change of investors’ risk recognition, which is caused by financial shock, in the Chinese capital market.

Suggested Citation

  • Rong Xu & Jialu Chang & Conggang Li & Wenlan Wang, 2019. "Research on the influence of equity pledge on stock price crash risk: based on financial shock of 2015 stock market crisis," Economic and Political Studies, Taylor & Francis Journals, vol. 7(4), pages 480-505, October.
    • Handle: RePEc:taf:repsxx:v:7:y:2019:i:4:p:480-505
    DOI: 10.1080/20954816.2019.1667599
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    Citations

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    Cited by:

    1. Huang, Jinbo & Ding, Ashley & Li, Yong & Lu, Dong, 2020. "Increasing the risk management effectiveness from higher accuracy: A novel non-parametric method," Pacific-Basin Finance Journal, Elsevier, vol. 62(C).
    2. Fengchao Li & Xing Zhang & Jaime Ortiz, 2021. "Linkages between share pledging, stock price risk and profitability: Evidence from the P.R. China," PLOS ONE, Public Library of Science, vol. 16(11), pages 1-20, November.
    3. Chen, Chuanglian & Zhou, Lichao & Sun, Chuanwang & Lin, Yuting, 2024. "Does oil future increase the network systemic risk of financial institutions in China?," Applied Energy, Elsevier, vol. 364(C).
    4. Zhou, Jingting & Li, Wanli & Yan, Ziqiao & Lyu, Huaili, 2021. "Controlling shareholder share pledging and stock price crash risk: Evidence from China," International Review of Financial Analysis, Elsevier, vol. 77(C).
    5. Zhao, Mengyang & Zhang, Lingxiao, 2023. "Foreign ownership, heterogeneous beliefs, and stock market volatility," Finance Research Letters, Elsevier, vol. 55(PA).
    6. Rong Xu & Xingmei Xu & Junyan Zhang & Conggang Li, 2021. "Does legal protection affect firm value? Evidence from China’s stock market," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 61(1), pages 51-70, March.

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