Share Pledging and Corporate Securities Fraud

Kryzanowski, Lawrence; Li, Mingyang; Xu, Shaofeng; Zhang, Jie

doi:10.2139/ssrn.3987430

Cited by 4 publications

(4 citation statements)

References 65 publications

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“…The propensity matching scoring method (Kryzanowski, Li, Xu, & Zhang, 2021) is used for the robustness test.…”

Section: Robustness Analysismentioning

confidence: 99%

Equity pledge of controlling shareholders and investment structure

Duan,

Nor,

Selamat

2024

5009

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This study aims to explore the influence of the controlling shareholders' equity pledge on the company's investment structure and simultaneously investigate the regulatory effect of the ownership nature on the controlling shareholders' equity pledge and investment structure. We take China Shanghai and Shenzhen A-share listed companies as the research object, covering the data from 2013 to 2021, including 14,870 firm-year observations. The results show that the stock pledge behavior of the controlling shareholder tends to encourage the company to make more financial investments than physical investments. In addition, we find that ownership nature helps alleviate the above relationship to a certain extent. It is worth noting that non-manufacturing companies and non-big4 companies have a stronger positive impact on the company's investment structure than manufacturing companies and big4 companies. Finally, we also test the robustness of the research results using the propensity score matching method and the adding control variables method, which is consistent with the results of the baseline regression analysis. The proportion of equity pledged by controlling shareholders should be controlled, especially when the proportion of financial assets in the company's investment structure is too high. This measure can reduce the risk of financialization and maintain the stability of the financial market.

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“…The propensity matching scoring method (Kryzanowski, Li, Xu, & Zhang, 2021) is used for the robustness test.…”

Section: Robustness Analysismentioning

confidence: 99%

Equity pledge of controlling shareholders and investment structure

Duan,

Nor,

Selamat

2024

5009

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“…Jiang Yan (2009) believed that corporate governance could significantly reduce financing costs, and the impact on equity capital cost is greater than the impact on debt financing. Xu Sheng (2013) studied the equity capital cost of listed companies from the perspective of information quality and believed that improving the quality of accounting information is beneficial to reducing the equity capital cost of listed companies and maximizing corporate value (Barbaroux, 2014;Kryzanowski et al, 2021). Through the study of the nature of ultimate ownership and equity financing costs, Xiao Zuoping and Yin (2015) found that central enterprises have lower equity financing costs than local state-owned enterprises and private enterprises, while there is no significant difference in equity financing costs between private enterprises and local state-owned enterprises.…”

Section: Equity Capital Costmentioning

confidence: 99%

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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“…The reason behind this is that the intentional misconduct breaks investors' trust in firms, making investors no longer willing to embed the ethical financial premium in the firms' stock price. Prior literature also suggests that firms with pledging controlling shareholders are more inclined to commit financial fraud (Xie and Liao 2018;Kryzanowski et al 2022). Once the intentional financial misreporting is discovered by the market, there will be severe negative market reactions, which may further magnify the margin call risk.…”

Section: Related Literature Institutional Background and Hypothesis D...mentioning

confidence: 99%

“…Prior literature also suggests that firms with pledging controlling shareholders are more inclined to commit financial fraud (Xie and Liao 2018; Kryzanowski et al . 2022). Once the intentional financial misreporting is discovered by the market, there will be severe negative market reactions, which may further magnify the margin call risk.…”

Section: Related Literature Institutional Background and Hypothesis D...mentioning

confidence: 99%

Stock Pledge by Controlling Shareholder and Corporate Social Responsibility*

Wen,

Tong,

Xie

et al. 2023

Asia-Pac J of Fin Stud

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We examine the influence of stock pledge by controlling shareholders on corporate social responsibility (CSR). Results show that firms exhibit poorer CSR performance when the controlling shareholders have more shares under pledge to financial institutions. Further analyses suggest that the negative relation between stock pledge and CSR only exists in financially constrained firms and non‐state‐owned firms, in which the pledging controlling shareholders have greater incentive to increase stock price and maintain their control rights. Our findings support a margin call hypothesis that firms tend to cut off CSR spending to improve short‐term financial performance and reduce the risk of losing control rights.

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Share Pledging and Corporate Securities Fraud

Cited by 4 publications

References 65 publications

Equity pledge of controlling shareholders and investment structure

Equity pledge of controlling shareholders and investment structure

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

Stock Pledge by Controlling Shareholder and Corporate Social Responsibility*

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