Share Pledging in China: Funding Listed Firms or Funding Entrepreneurship?

62 Pages Posted: 13 Jan 2022

See all articles by Zhiguo He

Zhiguo He

University of Chicago - Finance

Bibo Liu

Tsinghua University - PBC School of Finance

Feifei Zhu

Central University of Finance and Economics

Multiple version iconThere are 2 versions of this paper

Date Written: January 8, 2022

Abstract

This paper studies the connection between share pledging and entrepreneurial activities in China, challenging the common wisdom that share pledging funds circle back to the listed firms. Share pledging funds are at the discretion of the shareholders who pledge their publicly traded shares, and survey evidence shows that a majority of the largest shareholders (67.3%) used pledging funds outside the listed firms. By linking firm registration data with share pledging data, we show a positive relation between shareholders’ pledging transactions and entrepreneurial activities. Utilizing the launch of the exchange market in 2013 as a quasi-natural experiment that favors share pledging by natural person shareholders against that by legal entity shareholders, our difference-in-differences (DiD) analysis shows natural person shareholders increased their entrepreneurial activities significantly in response to the policy shock, relative to legal entity shareholders. In addition to various robustness checks, we also show that shareholders with better access to share pledging invest more heavily in industries with above-median growth potential.

Keywords: Share pledging, Loans, Entrepreneurship, Listed firms, Economic growth

JEL Classification: G12, G32, M13

Suggested Citation

He, Zhiguo and Liu, Bibo and Zhu, Feifei, Share Pledging in China: Funding Listed Firms or Funding Entrepreneurship? (January 8, 2022). University of Chicago, Becker Friedman Institute for Economics Working Paper No. 2022-06, 2022, Available at SSRN: https://ssrn.com/abstract=4006654 or http://dx.doi.org/10.2139/ssrn.4006654

Zhiguo He (Contact Author)

University of Chicago - Finance ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

HOME PAGE: http://www.zhiguohe.com

Bibo Liu

Tsinghua University - PBC School of Finance ( email )

No. 43, Chengdu Road
Haidian District
Beijing 100083
China

Feifei Zhu

Central University of Finance and Economics ( email )

770 Middle Road
Dresden, ME 04342
United States

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