Insider Share-Pledging, Implicit Guarantees and Financing Constraints: Based on CSMAR Database

Abstract

Financing constraint has always been an important factor hindering the healthy development of China's real economy. Share pledging is the common financing method in the current mainland capital market, and the implicit guarantees affect the difficulty of financing. This paper is to investigate the impact of share pledging caused by major stockholders to the financing constraints. Taking a-share listed companies in Shanghai and Shenzhen stock exchanges from 2005 to 2020 as samples, we select ordered logistic regression with five indicators to measure the degree of financing constraints, and examine the relationship between equity pledging and financing constraints based on multiple regression model. The results suggest that equity pledging is correlated with the company's financial constraint. Besides, the implicit government guarantees significantly alleviate this impact. We further contribute to the literature on financing constraints and equity pledging by discussing the choice of business strategy during the period of insider equity pledging.