Collateral damage: Evidence from share pledging in China

Danglun Luo, Zhirong Piao, Cen Wu and Frank Feida Zhang

International Review of Financial Analysis, 2024, vol. 93, issue C

Abstract: This paper examines the effects of share pledging by controlling shareholders on tunneling. Using a sample of Chinese listed companies from 2004 to 2018, we find that share-pledging firms engage in more tunneling than non-share-pledging firms do. Our results are robust to alternative measures of tunneling, alternative estimation methods, and endogeneity checks using a difference-in-differences analysis. Moreover, we find that the positive association between share pledging and tunneling is more pronounced when firms' controlling shareholders have a stronger incentive to tunnel (e.g., firms with a greater wedge between cash flow rights and control rights) and when monitoring mechanisms are weak (e.g., firms with fewer analysts following or lower institutional holdings).

Keywords: Share pledging; Margin call; Tunneling (search for similar items in EconPapers)
JEL-codes: G15 G30 (search for similar items in EconPapers)
Date: 2024
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:93:y:2024:i:c:s1057521924001194

DOI: 10.1016/j.irfa.2024.103187

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