Controlling Shareholder Pledges and Cost of Equity Capital: Analyzing Empirical Evidence from A-Share Listed Companies

Cheng Guo (), Huang Rong (), Zhaiting Yang (), Stavros Sindakis () and Sakshi Aggarwal ()
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Cheng Guo: Chongqing University of Technology
Huang Rong: Chongqing University of Technology
Zhaiting Yang: Chongqing University of Technology
Stavros Sindakis: Hellenic Open University
Sakshi Aggarwal: Institute of Strategy, Entrepreneurship and Education for Growth

Journal of the Knowledge Economy, 2024, vol. 15, issue 2, No 36, 5914-5938

Abstract: Abstract With the constant increase in China’s stock pledge transactions, controlling shareholders’ equity pledges may result in inadequate investment, which government regulatory authorities, investors, and financial management departments should be aware of. Taking China’s A-share listed companies from 2013 to 2019 as a sample, this paper examines the impact of controlling shareholder pledge on equity capital cost. It is found that the equity capital cost of listed companies increases significantly after controlling shareholder pledge, and high-quality audit reports help reduce the influence of controlling shareholder pledge on it. In addition, the mechanism test shows that controlling shareholder pledge impacts the equity capital cost by reducing stock liquidity and increasing the tunneling behavior of large shareholders. Further research shows that under controlling shareholder pledges, improving the quality of information disclosure can help reduce the equity capital cost, while stock price risk can increase the equity capital cost.

Keywords: Controlling shareholder pledge; Equity capital; Audit quality; Business operations; Financing cost; China (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1007/s13132-023-01109-y

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