Controlling Shareholders' Pledge Pressure and Financial Asset Investment: An Empirical Analysis based on Pledge Price

• Published in: Emerging markets finance & trade Vol. 60; no. 15; pp. 3638 - 3660
• Main Authors: Niu, Yuhao, Lu, Chuang, Zhang, Wenting, Li, Xinwu
• Format: Journal Article
• Language: English
• Published: Abingdon Routledge 07.12.2024; Taylor & Francis Ltd
• Subjects: controlling shareholder; financial assets; pledge pressure; pledge price; Share pledge; Stockholders
• ISSN: 1540-496X; 1558-0938
• DOI: 10.1080/1540496X.2024.2356883

Unlike existing literature that primarily examines the quantity of share pledges, this study delves into the impact of controlling shareholders' share pledge pressure on firms' financial asset investment. Using manually collected pledge price data and focusing on Chinese listed firms from 2007 to 2018, we observe a positive correlation: the higher the controlling shareholders' share pledge pressure is, the higher the firm's financial investment will be. Our findings withstand various robustness tests. Channel tests reveal that share pledge pressure expedites financial asset investment by increasing operational and cash flow risks. Moreover, the impact of share pledge pressure on a firm's financial investment becomes more pronounced when the pledgee is a securities or asset management company, the pledge duration is longer, the controlling shareholder's pledge ratio is higher, or the firm faces a challenging business environment. This study offers valuable insights for accurately and directly measuring controlling shareholders' share pledge pressure and underscores the pivotal role of share pledging in firm investment decisions.