Does Share Pledging Impair Stakeholder Welfare? Evidence Based on Corporate Social Responsibility

54 Pages Posted: 9 Dec 2021

See all articles by Chengcheng Li

Chengcheng Li

Dongbei University of Finance and Economics

Xiaoqiong Wang

Indiana University Kokomo

Feifei Zhu

Central University of Finance and Economics

Abstract

This paper investigates whether and how share pledging by controlling shareholders affects stakeholder wealth using Chinese listed firms from 2007 to 2018. Employing corporate social responsibility (CSR) as a proxy for stakeholder welfare, we find that share pledging impedes a firm’s overall CSR, reduces activities associated with CSR strength scores, as well as dimensions related to the benefits of primary stakeholders. We further show that both the potential risks of being replaced and the actual margin call risks faced by controlling shareholders aggravate the negative relation between pledging and CSR, while the external monitoring and financial constraint channels do not seem to explain the negative relation. The evidence suggests that the controlling shareholders’ management of pledging risks is the underlying mechanism through which pledging impedes CSR and extracts benefits from stakeholders.

Keywords: Corporate Social Responsibility, Share Pledging, Margin Call, Stakeholder Welfare, Control Rights

Suggested Citation

Li, Chengcheng and Wang, Xiaoqiong and Zhu, Feifei, Does Share Pledging Impair Stakeholder Welfare? Evidence Based on Corporate Social Responsibility. Available at SSRN: https://ssrn.com/abstract=3981294 or http://dx.doi.org/10.2139/ssrn.3981294

Chengcheng Li

Dongbei University of Finance and Economics ( email )

China

Xiaoqiong Wang

Indiana University Kokomo ( email )

2300 South Washington Street
P.O. Box 9003
Kokomo, IN 46904-9003
United States

Feifei Zhu (Contact Author)

Central University of Finance and Economics ( email )

770 Middle Road
Dresden, ME 04342
United States

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