Does Stock Pledging by Controlling Shareholder Affect Systematic Tail Risk?

53 Pages Posted: 1 May 2020

See all articles by Chenlin Yang

Chenlin Yang

School of management,Huazhong University of Science & Technology

Xinping Xia

affiliation not provided to SSRN

Dongming Jiang

Huazhong University of Science and Technology, Students

Yuguo Li

Huazhong University of Science and Technology, Students; Huazhong University of Science and Technology, Students

Date Written: August 31, 2019

Abstract

It is a ubiquitous corporate governance phenomenon in many countries that shareholders pledge their ownership as collateral to obtain personal loans, while Chinese market provides a specific institutional background to study controlling shareholders. With a sample consisted of 21,921 firm-year observations from 2007 to 2018, we find a significant casual negative impact that dominant stockholder’s share pledging has on both systematic right-tail risk and left-tail risk. Furthermore, we examine two mechanisms to explain the casual association respectively. First, we find a negative signal to the market, caused by share pledges, will reduce the systematic right-tail risk. Second, the controlling shareholder who pledges their own holdings will bring down the systematic left-tail risk through the earnings management channel. Additionally, we conduct several robustness checks like PSM, IV, alternative subsamples and an alternative independent variable to support our results are consistent.

Keywords: Stock pledges; Systematic tail risk; Signaling; Earning management

JEL Classification: G14, G18, G35

Suggested Citation

Yang, Chenlin and Xia, Xinping and Jiang, Dongming and Li, Yuguo, Does Stock Pledging by Controlling Shareholder Affect Systematic Tail Risk? (August 31, 2019). Available at SSRN: https://ssrn.com/abstract=3570203 or http://dx.doi.org/10.2139/ssrn.3570203

Chenlin Yang (Contact Author)

School of management,Huazhong University of Science & Technology ( email )

1037 Luoyu Rd
Wuhan, 430074
China

Xinping Xia

affiliation not provided to SSRN

Dongming Jiang

Huazhong University of Science and Technology, Students ( email )

Wuhan
China

Yuguo Li

Huazhong University of Science and Technology, Students ( email )

Wuhan
China

Huazhong University of Science and Technology, Students ( email )

Wuhan
China

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