AAA Spark Meeting of Regions

Share Pledging by Controlling Shareholders and Earnings Quality: Evidence from China

• In Event: CSR-Sustainabilty Management

Abstract

Based on a sample of China’s A-share listed companies from 2007 to 2018, we find that share pledging by controlling shareholders significantly lowers earnings persistence and earnings value relevance, and the adverse impact of share pledging on earnings quality is mainly concentrated in non-state-owned companies. We further find that after share pledging, controlling shareholders increases management entrenchment, earnings manipulation, and accrual estimation errors, all of which reduces earnings persistence and earnings value relevance. The evidence adds to the literature on the economic consequences of share pledging and the literature on the determinants of earnings quality. The evidence also helps Chinese regulators and foreign institutional investors understand the mechanism through which share pledging disrupts the stability of the capital market.

Authors

• Juan Wang, SUNY Oneonta

• Xiangyan Shi, Southwestern University of Finance and Economics

• Qian Hao, Kutztown University of Penn