Acceso usuarios
Wei Liu, Xia Yang
This study investigates the impact of controlling shareholder share pledging (henceforth, share pledging) on tunneling in an emerging market. Using a large sample of Chinese-listed firms from 2004 to 2019, we find that the presence of share pledging results in a 9.7% increase in tunneling, and higher controlling shareholders’ pledging ratio is associated with more severe tunneling. The positive relationship between share pledging and tunneling is significantly stronger in non-SOEs than in SOEs. We also find that strong monitoring of multiple large shareholders, high analysts’ coverage, and strong institutional environment help mitigate the tunneling induced by share pledging. We further find that the cumulative abnormal returns around the interim announcements of share pledging are significantly negative. Overall, the findings in this study suggest an exacerbating effect of share pledging on tunneling in an emerging market when external monitoring and investor protection is relative weak.
