The impact of share pledging regulations on stock trading and firm valuation

Wang, Yuchun; Chou, Robin K.

doi:10.1016/j.jbankfin.2018.01.016

Cited by 100 publications

(62 citation statements)

References 43 publications

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“…Chan et al (2018) find that firms controlling shareholder stock pledges are more likely to engage stock repurchase, especially when they face margin call pressure. Wang and Chou (2018) find that stock pledging firms exhibit higher stock returns than those of non-pledged firms after a legal improvement to protect minority shareholders in Taiwan.…”

Section: Stock Pledge Agency Problem and Firm Valuementioning

confidence: 85%

“…The relatively excessive control rights enable controlling shareholders to take self-serving corporate policies while lower cash-flow rights would lead to entrenchment problems and increase the incentives of the large shareholder to expropriate (Bozec and Laurin, 2008). Therefore, a longterm stock pledge would result in prolonged excessive voting rights of controlling shareholders, thus encouraging them to pursue private benefits at the expense of minority shareholders (Bozec and Laurin, 2008;Wang and Chou, 2018;Zhao et al, 2019;Ouyang et al, 2019;Li, Zhou. Yan, and Zhang, 2019).…”

Section: The Aggravated Expropriation Hypothesismentioning

confidence: 99%

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Controlling Shareholder Stock Pledge, Aggravated Expropriation and Corporate Acquisitions

Siyuan¹

2020

Preprint

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This study examines the effect of controlling shareholder stock pledge on corporate acquisition decisions and associated performance. Using the sample of listed firms in China, we find that pledging firms, consistent with the aggravated expropriation hypothesis, initiate more takeovers, and further, acquisitions conducted by pledging firms obtain lower announcement returns. We address the endogenous concerns by using the instrumental variable and the difference in differences approaches. Moreover, our channel tests suggest that pledging acquirers overpay in the deals and are more likely to be involved in related party transactions. Cross-sectionally, we find that the relationship between the share pledge and returns is stronger for non-SOEs and firms with high-level free cash flow. Lastly, we find that pledging acquires underperform in the long-run in terms of lower ROA and a greater likelihood of goodwill impairment. Overall, our findings indicate that controlling shareholders increasingly expropriate minority shareholders' interest through self-serving corporate takeovers after the stock pledge.

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Section: Stock Pledge Agency Problem and Firm Valuementioning

confidence: 85%

Section: The Aggravated Expropriation Hypothesismentioning

confidence: 99%

Controlling Shareholder Stock Pledge, Aggravated Expropriation and Corporate Acquisitions

Siyuan¹

2020

Preprint

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“…For example, based on the capital market in Taiwan, Dou et al. (2016) and Wang and Chou (2018) find a negative impact of share pledging on firms’ valuation, especially in the case of controlling shareholders’ share pledging. Using Indian data, Singh (2018) also finds a negative impact of share pledging on firms’ value when the shares are pledged for personal loans.…”

Section: Institutional Background and Hypothesis Developmentmentioning

confidence: 99%

“…Several studies focus on its impact on firms’ valuation, and find a negative effect (Anderson and Puleo 2015; Dou et al. 2016; Singh 2018; Wang and Chou 2018). By examining the influence of controlling shareholders' share pledging on accounting conservatism, our study provides evidence of the impact of share pledging on firms’ reporting quality, which is of great importance considering that high‐quality information disclosure is the foundation for the efficient function of capital markets.…”

mentioning

confidence: 99%

Relationship Between Controlling Shareholders’ Participation in Share Pledging and Accounting Conservatism in China

2019

Australian Accounting Review

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This study examines the relationship between controlling shareholders’ participation in share pledging and accounting conservatism in the Chinese stock market. Share pledging introduces risks to controlling shareholders and leads to severe information asymmetry between controlling shareholders and outside minority shareholders. This, in turn, results in competing incentives with regard to financial reporting. We find that controlling shareholders’ participation in share pledging negatively affects accounting conservatism, especially for firms located in regions with weak legal enforcement and poor investor protection. Our study shows that controlling shareholders’ share‐pledging behaviour negatively influences firms’ reporting quality, especially in areas with weak legal systems.

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“…Dou et al [20] report a negative market reaction to SP announcements for firms. Using the adoption of a company law that protects minority shareholders, Wang and Chou [21] report a positive market reaction for a sample of Taiwanese SP firms. In the context of the bond market default spread, Ouyang et al [22] show that the bond default risk premium increases after a firm discloses SP.…”

Section: Background Literature Review and Hypothesis Developmentmentioning

confidence: 99%

Do Controlling Shareholders Who Pledged Their Shares Affect Sustainable Development? An Investigation Based on the Perspective of Corporate Innovation

2019

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We examine the impact of share pledging (SP) on a firm’s innovation using a sample of Chinese firms. Our findings show that when controlling shareholders pledged their shares in personal loans, their firm’s innovation decreases. Our findings are robust for alternative metrics of innovation and SP. Additional analyses suggest that when controlling shareholders have little ownership or stock price volatility is high, the impact of SP on corporate innovation magnifies, presumably due to the high margin call risk of share against the pledged controlling shareholders. Overall, our study shows that the self-interest of controlling shareholders with pledged shares impedes corporate innovation, thereby impeding the sustainable development of society.

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The impact of share pledging regulations on stock trading and firm valuation

Cited by 100 publications

References 43 publications

Controlling Shareholder Stock Pledge, Aggravated Expropriation and Corporate Acquisitions

Controlling Shareholder Stock Pledge, Aggravated Expropriation and Corporate Acquisitions

Relationship Between Controlling Shareholders’ Participation in Share Pledging and Accounting Conservatism in China

Do Controlling Shareholders Who Pledged Their Shares Affect Sustainable Development? An Investigation Based on the Perspective of Corporate Innovation

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