Using stock split to secure pledged shares: Evidence from Chinese listed firms

Qizhi Tao, Xueman Xiang and Biao Yi

International Review of Economics & Finance, 2021, vol. 74, issue C, 160-175

Abstract: Controlling shareholders who face margin call pressure may initiate stock splits to prop up the stock price in order to secure the pledged shares. We find supporting evidence based on a sample of Chinese listed firms through 2008–2018 where share pledge is prevalent. The findings are robust to various robustness checks, and are stronger for non-SOEs where losing control right is indeed a concern. We further show that controlling shareholders consider investors’ demand for low-priced stocks when initiating stock split to protect pledged shares. Importantly, we propose a new measure for margin call pressure, Distance, which considers both the proportion of shares pledged and the distance between stock price and margin call trigger point. We find margin call pressure starts to impact stock split as Distance approaches 160%, a trigger level commonly-used in industry. Investors react less favorably to split announcement when controlling shareholders face high margin call pressure.

Keywords: Share pledge; Stock split; Margin call pressure; Catering (search for similar items in EconPapers)
JEL-codes: G32 G35 G41 O16 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1059056021000320
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:74:y:2021:i:c:p:160-175

DOI: 10.1016/j.iref.2021.02.007

Access Statistics for this article

International Review of Economics & Finance is currently edited by H. Beladi and C. Chen

More articles in International Review of Economics & Finance from Elsevier
Bibliographic data for series maintained by Catherine Liu ().