Controlling shareholder share pledging and stock price crash risk: Evidence from China

Zhou, Jingting; Li, Wanli; Yan, Zhou; Lyu, Huaili

doi:10.1016/j.irfa.2021.101839

Cited by 66 publications

(41 citation statements)

References 89 publications

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“…Xu et al [ 34 ] similarly concluded that share pledging influences the stock price crash risk by producing longer suspension and greater price fluctuation. Pledged firms exhibit much higher stock price crash risk compared with non-pledged counterparts when it is the controlling shareholder that pledges the shares [ 35 ]. Yang et al [ 36 ] found that share pledging by controlling shareholders has a significant casual negative impact on both right-tail and left-tail risk.…”

Section: Literature Review and Research Hypothesesmentioning

confidence: 99%

“…Although share pledge is a channel to potentially relieve the financial constraints, it does not mean that funds will be invested to develop business and increase output [ 44 ]. Some pledged shares are purposed issued to acquire personal debt spend on private consumption [ 5 , 35 ]. When the stock price falls to the warning line, shareholders either face the pressure of supplementary margin calls, which will affect the firm’s cash flow and business performance due to insufficient liquidity, or they will take the risk of losing control [ 45 ].…”

Section: Literature Review and Research Hypothesesmentioning

confidence: 99%

“…Several studies have concluded that the stock price risk is higher in firms with a high share pledging ratio or controlling shareholders’ share-pledging. Zhou et al [ 35 ] noted that pledged firms with higher pledging ratios were much more at risk of stock price crash. Controlling shareholders may display opportunistic behaviors [ 35 ], such as using tunneling or related party transactions to expropriate minority shareholders [ 45 ].…”

Section: Literature Review and Research Hypothesesmentioning

confidence: 99%

“…Zhou et al [ 35 ] noted that pledged firms with higher pledging ratios were much more at risk of stock price crash. Controlling shareholders may display opportunistic behaviors [ 35 ], such as using tunneling or related party transactions to expropriate minority shareholders [ 45 ]. These actions may stifle the firm’s innovative activities and impede performance [ 43 ].…”

Section: Literature Review and Research Hypothesesmentioning

confidence: 99%

See 3 more Smart Citations

Linkages between share pledging, stock price risk and profitability: Evidence from the P.R. China

Zhang

Ortiz

2021

PLoS ONE

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Share pledging has become popular as a method of loan collateral among Chinese shareholders. Our research used a sample of Chinese listed firms between 2008–2018 and produced two main findings. Firstly, we found a negative association between stock price risk and firm profitability. Our second finding was that the interaction effect of share pledging and stock price risk is greater on firm profitability than the effect of stock price risk itself. We examined the role of share pledging by modeling pooled OLS and fixed effects using share pledging behavior, controlling shareholders’ share pledging and the share pledging ratio to reinforce the robustness of our results. Furthermore, we investigated the Davis Double Play effect of share pledging to analyze how share pledging affects stock price risk. We found that higher EPS and investor expectations cannot mitigate the positive impact of share pledging on stock price risk. That is, the reduction of EPS and the deterioration of investor expectations caused by share pledging risk will not further aggravate the stock price risk, as shareholders may have taken some managerial actions to affect the transmission mechanism.

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Section: Literature Review and Research Hypothesesmentioning

confidence: 99%

Section: Literature Review and Research Hypothesesmentioning

confidence: 99%

Section: Literature Review and Research Hypothesesmentioning

confidence: 99%

Section: Literature Review and Research Hypothesesmentioning

confidence: 99%

See 2 more Smart Citations

Linkages between share pledging, stock price risk and profitability: Evidence from the P.R. China

Zhang

Ortiz

2021

PLoS ONE

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“…Using a sample of 1452 Indian firms, Chauhan et al (2021) argue that insider stock pledging exacerbates stock volatility and has a negative impact on firm value. Zhou et al (2021) document that insider stock pledging increases the future stock price crash risk of firms in China. However, the present study investigates the interplay between insiders’ stock pledging activities and stock price informativeness of firms in India.…”

Section: Introductionmentioning

confidence: 99%

Insider stock pledging and stock price informativeness: Evidence from India

Singh

2022

Rev Financ Econ

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Insiders' shares can act as collateral while raising funds from lenders. This study examines the impact of insiders' stock pledging activities on stock price informativeness using a sample of 1835 Indian firms. Our findings report that insider stock pledging increases the informational efficiency of stock prices. This informational efficiency increases for larger firms with: (1) financial constraints (high leverage and low cash holdings); (2) greater reliance on trade credit; and(3) higher indulgence in related party transactions. We also provide evidence on abnormal share turnover as a trading mechanism through which insider stock pledging is related to stock price informativeness. Our findings are robust across different specifications and after accounting for endogeneity issues.

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Could the simultaneous persistence of greater cash holdings and interest‐bearing debts affect stock price crash risk?

Wang

Johan

et al. 2023

Int. J Fin Econ

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We study the impact of a unique financial anomaly—the simultaneous persistence of greater cash holdings and interest‐bearing debts (SP‐GCHID) on stock price. Due to institutional diversity and the nature of transition economies, high cash holdings do not always stem from precautionary motive as usually claimed but can be the result of cash misappropriation and debt manipulation by major shareholders. Analysing data from Chinese listed firms from 2010 to 2018, we find that SP‐GCHID is associated with a higher stock price crash risk (SPCR). It is more evident among firms with major shareholders pledging their shares and firms exposed to more external information monitoring. SP‐GCHID also affects SPCR through increasing real earnings management, further suggesting that major shareholders' misappropriation is the main reason for SP‐GCHID's adverse effect. These findings are also robust in a range of endogenous tests. To our knowledge, this study is the first to explore the economic consequences of SP‐GCHID.

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Controlling shareholder share pledging and stock price crash risk: Evidence from China

Cited by 66 publications

References 89 publications

Linkages between share pledging, stock price risk and profitability: Evidence from the P.R. China

Linkages between share pledging, stock price risk and profitability: Evidence from the P.R. China

Insider stock pledging and stock price informativeness: Evidence from India

Could the simultaneous persistence of greater cash holdings and interest‐bearing debts affect stock price crash risk?

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