Before thrive, first survive: The impact of controlling shareholder pledging on corporate ESG performance

Yang Gao, Yun Ling and Hui Peng

Pacific-Basin Finance Journal, 2024, vol. 85, issue C

Abstract: This paper investigates the impact of controlling shareholder pledging on corporate environmental, social, and governance (ESG) performance. Using data from Chinese listed firms, we show that controlling shareholder pledging significantly weakens firms' ESG performance and that this effect is robust to endogeneity and the choice of ESG metrics and controlling shareholder pledging measures. In addition, we show that the main channel through which ESG performance deteriorates for firms with controlling shareholder pledging is the risk of losing control. The adverse impact of controlling shareholder pledging on ESG is much less when control rights are not at risk. On the other hand, limited resources (e.g. tunnelling and financial constraints) contribute little to the impact. Our further analyses demonstrate that internal monitoring mechanisms can mitigate the negative impact of controlling shareholder pledging on corporate ESG performance, but external monitoring mechanisms cannot.

Keywords: Agency problems; Controlling shareholder pledging; ESG; Corporate monitoring (search for similar items in EconPapers)
JEL-codes: G32 G34 (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:pacfin:v:85:y:2024:i:c:s0927538x24001409

DOI: 10.1016/j.pacfin.2024.102389

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