Promoter's share pledging and investment–The role of financial constraints

Amal Jose and Saumitra Bhaduri

Finance Research Letters, 2024, vol. 62, issue PA

Abstract: This paper delves into the intricate dynamics of share pledging and its impact on investment, while specifically addressing the influence of financial constraints on this relationship. The study reveals a significant negative relationship between share pledging and investments. Notably, the adverse effects of share pledging are exacerbated in financially constrained firms. Moreover, the study also unveils an inverse relationship between Research and Development (R&D) intensity and share pledging, particularly pronounced in financially constrained contexts. The findings underscore the prevalence of the leverage effect and fund expropriation hypothesis over the augment effect and mitigation effect hypothesis.

Keywords: Share pledging; Financial constraints; Investment; Research and development intensity (search for similar items in EconPapers)
JEL-codes: G3 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:62:y:2024:i:pa:s1544612324001090

DOI: 10.1016/j.frl.2024.105079

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