Private Firms’ Financial Constraints and Share Pledging by Controlling Shareholders of Publicly Listed Firms: Evidence from China

61 Pages Posted: 29 Jul 2020 Last revised: 3 Feb 2023

See all articles by Kai Guo

Kai Guo

Shanghai Jiao Tong University (SJTU) - Antai College of Economics and Management

Bin Ke

National University of Singapore

Song Tang

Shanghai University of Finance and Economics - School of Accountancy; Shanghai University of Finance and Economics - Institute of Accounting and Finance

Date Written: February 3, 2023

Abstract

Private firms face significant financial constraints that limit their investment and growth. Recognizing the fact that many private firms belong to business groups that contain at least one publicly listed firm, we hypothesize that private firms can partially relieve their financial constraints through the cash proceeds from share pledging of publicly listed firms by the common controlling shareholder. Using data from publicly listed Chinese firms, we find results consistent with this hypothesis, especially for private firms facing greater financial constraints. However, such share pledging also creates a negative spillover on shareholder value of publicly listed firms under common ownership.

Keywords: financial constraints; share pledging; common ownership; spillover; China

JEL Classification: D22, G32, G38

Suggested Citation

Guo, Kai and Ke, Bin and Tang, Song, Private Firms’ Financial Constraints and Share Pledging by Controlling Shareholders of Publicly Listed Firms: Evidence from China (February 3, 2023). Available at SSRN: https://ssrn.com/abstract=3642515 or http://dx.doi.org/10.2139/ssrn.3642515

Kai Guo

Shanghai Jiao Tong University (SJTU) - Antai College of Economics and Management ( email )

No.1954 Huashan Road
Shanghai Jiao Tong University
shanghai, Shanghai 200030
China

Bin Ke (Contact Author)

National University of Singapore ( email )

Mochtar Riady Building, BIZ 1, #07-30
15 Kent Ridge Drive
Singapore, 119245
Singapore
+6566013133 (Phone)

Song Tang

Shanghai University of Finance and Economics - School of Accountancy ( email )

No. 777 Guoding Road, Shanghai
Shanghai, 200433
China
86-21-6590 4842 (Phone)

Shanghai University of Finance and Economics - Institute of Accounting and Finance ( email )

Shanghai, 200433
China
86-21-6590 4842 (Phone)

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