Share pledges, tone of earnings communication conferences, and market reaction: evidence from China

Wanlong Zhao, Wei Zhang, Xiong Xiong and Gaofeng Zou

Accounting and Finance, 2019, vol. 59, issue 5, 2817-2853

Abstract: We investigate how share pledging affects firms’ disclosures and influences investors in Chinese stock market. The tone of firm disclosures when there are shares pledged by controlling shareholders is more positive than that of firms without them. Considering tone inflation motivation and ability simultaneously, we find share pledge risk has an inverted U‐shaped relation with tone. Investors react positively to tone in short‐run windows, and firms with controlling shareholders’ pledges have higher stock returns for earnings communication conferences. We identify an inverted U‐shaped link between margin distance of controlling shareholders and stock returns for earnings communication conferences.

Date: 2019
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