Private firms' financial constraints and share pledging by controlling shareholders of publicly listed firms: Evidence from China |
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| Institution: | 1. Department of Accounting, Antai College of Economics and Management, Shanghai Jiao Tong University, 1954 Huashan Road, Shanghai, 200030, China;2. Department of Accounting, Business School, National University of Singapore, Mochtar Riady Building, BIZ 1, # 07-30, 15 Kent Ridge Drive, 119245, Singapore;3. Institute of Accounting and Finance, Shanghai University of Finance and Economics, No.777 Guoding Road, Shanghai 200433, China;1. Lingnan College, Sun Yat-sen University, China;2. Business School, Sichuan University, China;1. Northwestern University, Pritzker School of Law and Kellogg School of Management, United States of America;2. Fundacao Getulio Vargas, School of Business at Sao Paulo, Brazil;3. Korea University Business School, South Korea;4. WHU - Otto Beisheim School of Management, Germany |
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| Abstract: | Private firms face significant financial constraints that limit their investment and growth. Recognizing the fact that many private firms belong to business groups that contain at least one publicly listed firm, we hypothesize that private firms can partially relieve their financial constraints through the cash proceeds from share pledging of publicly listed firms by the common controlling shareholder. Using data from publicly listed Chinese firms, we find results consistent with this hypothesis, especially for private firms facing greater financial constraints. However, such share pledging also creates a negative spillover on shareholder value of publicly listed firms under common ownership. |
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