Equity pledge and controlling shareholders’ over-appointing of directors

Lei Zhou and Feng Wei

International Review of Economics & Finance, 2025, vol. 101, issue C

Abstract: This paper investigates the effect of equity pledge on controlling shareholders' over-appointing of directors. We find that the percentage of shares pledged by the controlling shareholder is positively related to the possibility and the percentage of controlling shareholders' over-appointing of directors, and this positive relationship is less pronounced for SOEs. We then provide evidence to show that the positive effect of equity pledge on controlling shareholders' over-appointing of directors is due to controlling shareholders' desire to reduce the risk of control transfer and to enjoy the private benefits of control. Finally, we find that as the percentage of shares pledged increases, controlling shareholders’ over-appointing of directors leads to higher stock price crash risk and lower firm value in the long run.

Keywords: Equity pledge; Over-appointing directors; Controlling shareholders; The risk of control transfer; Private benefits of control (search for similar items in EconPapers)
JEL-codes: G14 G32 M14 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:101:y:2025:i:c:s1059056025002485

DOI: 10.1016/j.iref.2025.104085

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