How does institutional investors' information acquisition inhibit share pledging? Evidence from China

Zhongyi Xiao, Haitao Chen and Kang Chen

International Review of Financial Analysis, 2023, vol. 89, issue C

Abstract: This study investigates whether and how institutional investors' information acquisition affects controlling shareholder's share pledging. Taking a unique data of institutional investors' corporate site visits in China, we find that institutional investors' corporate site visits significantly inhibit controlling shareholder's share pledging. This effect is robust to a series of robustness checks, including controlling for endogeneity concerns, propensity score matching method, alternative model specifications, and alternative measures of the independent variable. We then provide evidence that the negative relation between institutional investors' corporate site visits and controlling shareholder's share pledging is more pronounced for listed firms with less efficient information environment and weaker corporate governance. Further analysis indicates that the negative relation is also more pronounced when controlling shareholders are under higher margin call pressure and when the visiting institutional investors consist of more fund companies. Overall, our study is the first to provide direct evidence of the governance mechanism of financial intermediaries on shareholders' pledging decisions.

Keywords: Corporate site visits; Share pledging; Information environment; Corporate governance (search for similar items in EconPapers)
JEL-codes: G23 G32 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:89:y:2023:i:c:s1057521923002624

DOI: 10.1016/j.irfa.2023.102746

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