Hastily announced: Mergers and acquisitions with pledging shareholders

Xipei Hou, Shen, Yinjie(Victor), Jing Xing and Fuzhao Zhou

Journal of Financial Stability, 2023, vol. 67, issue C

Abstract: This study examines how controlling shareholders’ pledging behavior influences firms’ acquisition decisions. Employing a sample of Chinese listed firms from 2010 to 2018, we find that firms with pledging controlling shareholders are more likely to announce merger and acquisition (M&A) deals than firms with non-pledging shareholders. The positive relationship between share pledging and M&A announcements is more pronounced when the margin call pressure is higher. We show that the link between share pledging and M&As is best explained by the controlling shareholders’ fear of losing control, and is unlikely due to shareholder expropriation or optimism. Further analyses indicate that pledge-related acquisitions are associated with a lower success rate, longer trading suspension periods, and smaller (yet positive) market returns.

Keywords: Mergers and acquisitions; Stock pledging; Controlling shareholders; Margin call pressure (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finsta:v:67:y:2023:i:c:s1572308923000591

DOI: 10.1016/j.jfs.2023.101159

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