Does share pledging affect firms' use of derivatives? Evidence from China

Haomin Shen, Xiaoke Cheng, Caiyue Ouyang, Ya Li and Kam C. Chan

Emerging Markets Review, 2022, vol. 50, issue C

Abstract: We investigate whether share pledging by controlling shareholders affects firms' use of derivatives. Our findings suggest that share-pledging firms are more likely to use derivatives than non-share-pledging firms. In cross-section analyses, we observe that the relationship is more pronounced when the margin call risk is higher, for example, if controlling shareholders own fewer shares, firms are located in regions with higher levels of marketization, or firms have a higher stock price crash risk. Our findings indicate that shares pledged by controlling shareholders steer firms toward the use of derivatives to hedge firm activities and alleviate the margin call risk.

Keywords: Share pledging; Margin call; Derivatives use (search for similar items in EconPapers)
JEL-codes: G12 G13 G32 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ememar:v:50:y:2022:i:c:s1566014121000492

DOI: 10.1016/j.ememar.2021.100841

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