Share Pledging and Corporate Default Risk: Evidence from the Chinese Stock Market

Hongmei Xu

doi:doi:10.11648/j.jfa.20210903.15

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Share Pledging and Corporate Default Risk: Evidence from the Chinese Stock Market

Hongmei Xu

Published in Journal of Finance and Accounting (Volume 9, Issue 3)

Received: 29 March 2021 Accepted: 17 May 2021 Published: 21 June 2021

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Abstract

In this paper, we assess the economic impact of share pledging by focusing on corporate debt default risk, the most disruptive events in the life of a corporation. Using Instrumental Variables and a regulatory change that increasing the possibility of share pledging as a quasi-exogenous shock, we establish that increased share pledging decreases corporate default risk. The baseline results are robust by eliminating the effect of financial crises, adding other control variables, constructing new PSM samples and use other proxies for default risk. Further tests show that the relation is attenuated in higher ownership concentration and lower ex-ante institutional ownership firms. Our results indicate that share pledging can be beneficial to shareholders and important stakeholders like creditors by reducing the likelihood of corporate default. Our paper throws additional light on the economic impact of share pledging. Although several studies argue that share pledging incentivizes corporate insiders to use corporate resources for private benefits and destroy firm value on the Taiwanese stock market, our findings indicate that share pledging facilitates external monitoring and enables creditors to protect themselves. Our overall findings are consistent with prior literature which shows that share pledging improves market value of Chinese A-share listed firms. We believe that as strong government intervention during market downturns may limit A-share listed firms’ exposure to downside risk associated, share pledging can play a more positive role in our setting.

Published in	Journal of Finance and Accounting (Volume 9, Issue 3)
DOI	10.11648/j.jfa.20210903.15
Page(s)	93-100
Creative Commons	This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium or format, provided the original work is properly cited.
Copyright	Copyright © The Author(s), 2024. Published by Science Publishing Group

Keywords

Share Pledging, Default Risk, Ownership Concentration, Institutional Ownership

References

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APA Style

Hongmei Xu. (2021). Share Pledging and Corporate Default Risk: Evidence from the Chinese Stock Market. Journal of Finance and Accounting, 9(3), 93-100. https://doi.org/10.11648/j.jfa.20210903.15

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ACS Style

Hongmei Xu. Share Pledging and Corporate Default Risk: Evidence from the Chinese Stock Market. J. Finance Account. 2021, 9(3), 93-100. doi: 10.11648/j.jfa.20210903.15

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AMA Style

Hongmei Xu. Share Pledging and Corporate Default Risk: Evidence from the Chinese Stock Market. J Finance Account. 2021;9(3):93-100. doi: 10.11648/j.jfa.20210903.15

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@article{10.11648/j.jfa.20210903.15,
  author = {Hongmei Xu},
  title = {Share Pledging and Corporate Default Risk: Evidence from the Chinese Stock Market},
  journal = {Journal of Finance and Accounting},
  volume = {9},
  number = {3},
  pages = {93-100},
  doi = {10.11648/j.jfa.20210903.15},
  url = {https://doi.org/10.11648/j.jfa.20210903.15},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.jfa.20210903.15},
  abstract = {In this paper, we assess the economic impact of share pledging by focusing on corporate debt default risk, the most disruptive events in the life of a corporation. Using Instrumental Variables and a regulatory change that increasing the possibility of share pledging as a quasi-exogenous shock, we establish that increased share pledging decreases corporate default risk. The baseline results are robust by eliminating the effect of financial crises, adding other control variables, constructing new PSM samples and use other proxies for default risk. Further tests show that the relation is attenuated in higher ownership concentration and lower ex-ante institutional ownership firms. Our results indicate that share pledging can be beneficial to shareholders and important stakeholders like creditors by reducing the likelihood of corporate default. Our paper throws additional light on the economic impact of share pledging. Although several studies argue that share pledging incentivizes corporate insiders to use corporate resources for private benefits and destroy firm value on the Taiwanese stock market, our findings indicate that share pledging facilitates external monitoring and enables creditors to protect themselves. Our overall findings are consistent with prior literature which shows that share pledging improves market value of Chinese A-share listed firms. We believe that as strong government intervention during market downturns may limit A-share listed firms’ exposure to downside risk associated, share pledging can play a more positive role in our setting.},
 year = {2021}
}

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TY  - JOUR
T1  - Share Pledging and Corporate Default Risk: Evidence from the Chinese Stock Market
AU  - Hongmei Xu
Y1  - 2021/06/21
PY  - 2021
N1  - https://doi.org/10.11648/j.jfa.20210903.15
DO  - 10.11648/j.jfa.20210903.15
T2  - Journal of Finance and Accounting
JF  - Journal of Finance and Accounting
JO  - Journal of Finance and Accounting
SP  - 93
EP  - 100
PB  - Science Publishing Group
SN  - 2330-7323
UR  - https://doi.org/10.11648/j.jfa.20210903.15
AB  - In this paper, we assess the economic impact of share pledging by focusing on corporate debt default risk, the most disruptive events in the life of a corporation. Using Instrumental Variables and a regulatory change that increasing the possibility of share pledging as a quasi-exogenous shock, we establish that increased share pledging decreases corporate default risk. The baseline results are robust by eliminating the effect of financial crises, adding other control variables, constructing new PSM samples and use other proxies for default risk. Further tests show that the relation is attenuated in higher ownership concentration and lower ex-ante institutional ownership firms. Our results indicate that share pledging can be beneficial to shareholders and important stakeholders like creditors by reducing the likelihood of corporate default. Our paper throws additional light on the economic impact of share pledging. Although several studies argue that share pledging incentivizes corporate insiders to use corporate resources for private benefits and destroy firm value on the Taiwanese stock market, our findings indicate that share pledging facilitates external monitoring and enables creditors to protect themselves. Our overall findings are consistent with prior literature which shows that share pledging improves market value of Chinese A-share listed firms. We believe that as strong government intervention during market downturns may limit A-share listed firms’ exposure to downside risk associated, share pledging can play a more positive role in our setting.
VL  - 9
IS  - 3
ER  -

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Author Information

Hongmei Xu

Department of Finance, International Business College, South China Normal University, Guangzhou, China

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APA Style

Hongmei Xu. (2021). Share Pledging and Corporate Default Risk: Evidence from the Chinese Stock Market. Journal of Finance and Accounting, 9(3), 93-100. https://doi.org/10.11648/j.jfa.20210903.15

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ACS Style

Hongmei Xu. Share Pledging and Corporate Default Risk: Evidence from the Chinese Stock Market. J. Finance Account. 2021, 9(3), 93-100. doi: 10.11648/j.jfa.20210903.15

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AMA Style

Hongmei Xu. Share Pledging and Corporate Default Risk: Evidence from the Chinese Stock Market. J Finance Account. 2021;9(3):93-100. doi: 10.11648/j.jfa.20210903.15

Copy | Download

@article{10.11648/j.jfa.20210903.15,
  author = {Hongmei Xu},
  title = {Share Pledging and Corporate Default Risk: Evidence from the Chinese Stock Market},
  journal = {Journal of Finance and Accounting},
  volume = {9},
  number = {3},
  pages = {93-100},
  doi = {10.11648/j.jfa.20210903.15},
  url = {https://doi.org/10.11648/j.jfa.20210903.15},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.jfa.20210903.15},
  abstract = {In this paper, we assess the economic impact of share pledging by focusing on corporate debt default risk, the most disruptive events in the life of a corporation. Using Instrumental Variables and a regulatory change that increasing the possibility of share pledging as a quasi-exogenous shock, we establish that increased share pledging decreases corporate default risk. The baseline results are robust by eliminating the effect of financial crises, adding other control variables, constructing new PSM samples and use other proxies for default risk. Further tests show that the relation is attenuated in higher ownership concentration and lower ex-ante institutional ownership firms. Our results indicate that share pledging can be beneficial to shareholders and important stakeholders like creditors by reducing the likelihood of corporate default. Our paper throws additional light on the economic impact of share pledging. Although several studies argue that share pledging incentivizes corporate insiders to use corporate resources for private benefits and destroy firm value on the Taiwanese stock market, our findings indicate that share pledging facilitates external monitoring and enables creditors to protect themselves. Our overall findings are consistent with prior literature which shows that share pledging improves market value of Chinese A-share listed firms. We believe that as strong government intervention during market downturns may limit A-share listed firms’ exposure to downside risk associated, share pledging can play a more positive role in our setting.},
 year = {2021}
}

Copy | Download

TY  - JOUR
T1  - Share Pledging and Corporate Default Risk: Evidence from the Chinese Stock Market
AU  - Hongmei Xu
Y1  - 2021/06/21
PY  - 2021
N1  - https://doi.org/10.11648/j.jfa.20210903.15
DO  - 10.11648/j.jfa.20210903.15
T2  - Journal of Finance and Accounting
JF  - Journal of Finance and Accounting
JO  - Journal of Finance and Accounting
SP  - 93
EP  - 100
PB  - Science Publishing Group
SN  - 2330-7323
UR  - https://doi.org/10.11648/j.jfa.20210903.15
AB  - In this paper, we assess the economic impact of share pledging by focusing on corporate debt default risk, the most disruptive events in the life of a corporation. Using Instrumental Variables and a regulatory change that increasing the possibility of share pledging as a quasi-exogenous shock, we establish that increased share pledging decreases corporate default risk. The baseline results are robust by eliminating the effect of financial crises, adding other control variables, constructing new PSM samples and use other proxies for default risk. Further tests show that the relation is attenuated in higher ownership concentration and lower ex-ante institutional ownership firms. Our results indicate that share pledging can be beneficial to shareholders and important stakeholders like creditors by reducing the likelihood of corporate default. Our paper throws additional light on the economic impact of share pledging. Although several studies argue that share pledging incentivizes corporate insiders to use corporate resources for private benefits and destroy firm value on the Taiwanese stock market, our findings indicate that share pledging facilitates external monitoring and enables creditors to protect themselves. Our overall findings are consistent with prior literature which shows that share pledging improves market value of Chinese A-share listed firms. We believe that as strong government intervention during market downturns may limit A-share listed firms’ exposure to downside risk associated, share pledging can play a more positive role in our setting.
VL  - 9
IS  - 3
ER  -

Copy | Download