The Negative Effect of Share Pledging by Controlling Shareholders under COVID-19

Dengjin Zheng, Xin Dai, Tianqi Lan, Wei Zhang and Jian Mou

Emerging Markets Finance and Trade, 2021, vol. 57, issue 10, 2826-2837

Abstract: This paper tests the superimposed negative market reaction of listed companies with high-level share pledging by controlling shareholders to the coronavirus disease 2019 (COVID-19) pandemic and finds that it is alleviated in the pharmaceutical industry and when the share pledge funds are obtained from a brokerage firm or flow back to the listed companies. Furthermore, a low-quality information environment exacerbates the negative reaction, while high-level research and development (R&D) investment and free cash flow alleviate it. A possible mechanism underlying the results is that the “gray rhino” erodes the company’s operating efficiency. This paper provides timely and direct evidence regarding the capital market’s response to COVID-19.

Date: 2021
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DOI: 10.1080/1540496X.2021.1904885

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