The impact of share-pledging purposes on firm performance and innovation

Xiao Jia, Jin Jiang*, Rui Wang

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

1 Citation (Scopus)


Research question: Share pledging by controlling shareholders can be motivated by business or personal purposes. We investigate whether the firm performance and innovation outputs are different for firms with controlling shareholders pledging shares to support their firm's financing (business-pledging firms) and those pledging shares for increasing personal wealth (individual-pledging firms). Research findings: Using data from publicly listed Chinese firms, we find that business-pledging firms are associated with higher changes in Tobin's Q and more patent outputs compared with individual-pledging firms. In additional tests, we show that the impact of share-pledging purposes on firm performance and innovative outputs is more pronounced for Chinese non-state-owned enterprises, which have relatively limited access to traditional bank loans. Theoretical implications: In this study, we bring new empirical evidence to agency theory, especially the “principal–principal” problem. We identify two inherently different purposes in share-pledging cases—business pledging and individual pledging. We show that in business-pledging cases, pledgers' interests become more aligned with outside shareholders, and pledgers have higher incentives to enhance firm value and innovation productivity, relative to individual pledging. This paper adds to the evidence on the bright side of share pledges. Practitioner implications: This paper sheds light on the recent policy debate regarding the costs and benefits of share pledging and has implications for regulators and investors. Thus, it may be vital for publicly listed firms to disclose the purposes of share pledging.

Original languageEnglish
Pages (from-to)116-134
Number of pages19
JournalCorporate Governance: An International Review
Issue number1
Early online date15 Mar 2023
Publication statusPublished - 23 Jan 2024


  • controlling shareholders
  • corporate governance
  • firm performance
  • innovation
  • share pledging


Dive into the research topics of 'The impact of share-pledging purposes on firm performance and innovation'. Together they form a unique fingerprint.

Cite this