Controlling shareholder share pledging and firm cash dividends

Li, Wanli; Zhou, Jingting; Yan, Zhou; He, Zhongshi

doi:10.1016/j.ememar.2019.100671

Cited by 37 publications

(51 citation statements)

References 60 publications

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“…Ouyang et al (2019) contend that stock pledge initiated by the corporate insider exacerbates agency problems and find that insiders' stock pledges are negatively associated with executive pay-for-performance sensitivity. Li, Zhou, Yan, and Zhang (2019) find that firms with shares pledged by controlling shareholders have fewer cash dividend payments as compared to firms without such a stock pledge.…”

Section: Stock Pledge Agency Problem and Firm Valuementioning

confidence: 84%

“…Stock pledge activities can aggravate the expropriation because when controlling shareholders pledge their shares for a prolonged period, they transfer cash-flow rights on the pledged stocks to the pledgee. 8 As long as the pledge does not default, pledgers still retain their voting rights (Li, Zhou, Yan, and Zhang, 2019). 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).…”

Section: The Aggravated Expropriation Hypothesismentioning

confidence: 99%

“…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%

“…On the one hand, some studies show that the controlling shareholder stock pledge has negative impacts on corporate decisions and the shareholder's wealth (e.g., Chen et al, 2018;Dou et al, 2019). More specifically, they document that the stock pledge is associated with greater equity risk exposure and agency problems, subsequently triggering pricesupporting share repurchase activities (Chan et al, 2018), decreased executive pay-forperformance sensitivity (Ouyang et al, 2019), decreased cash dividend payouts (Li, Zhou. Yan, and Zhang, 2019); more earnings management (DeJong, Liao, and Xie, 2020; Signgh; 2018) and reduced innovation productivity .…”

Section: Introductionmentioning

confidence: 99%

“…The unique characteristic of the stock pledge has attracted extensive attention from the academia. Prior studies mainly focus on the effect of stock pledge on equity risk (e.g., Chen et al, 2018;Dou et al, 2019), firm valuation (Dou et al, 2019;Li, Liu, and Scott;, corporate innovation , dividend policy (Li, Zhou. Yan, and Zhang, 2019), share repurchase (Chan et al, 2018) and executive compensation (Ouyang et al, 2019).…”

Section: Introductionmentioning

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: 84%

Section: The Aggravated Expropriation Hypothesismentioning

confidence: 99%

Section: The Aggravated Expropriation Hypothesismentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

See 3 more Smart Citations

Controlling Shareholder Stock Pledge, Aggravated Expropriation and Corporate Acquisitions

Siyuan¹

2020

Preprint

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

et al. 2023

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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.

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Pledging and firm performance: Evidence from Indian firms

Rajhans¹

2022

Asia Pacific Management Review

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Controlling shareholder share pledging and firm cash dividends

Cited by 37 publications

References 60 publications

Controlling Shareholder Stock Pledge, Aggravated Expropriation and Corporate Acquisitions

Controlling Shareholder Stock Pledge, Aggravated Expropriation and Corporate Acquisitions

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

Pledging and firm performance: Evidence from Indian firms

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