{"title":"Debtholder responses to controlling shareholders’ share pledging","authors":"","doi":"10.1016/j.qref.2024.101928","DOIUrl":null,"url":null,"abstract":"<div><div>This study investigates debtholders’ responses to controlling shareholders’ share pledging. We found that share pledging by controlling shareholders is crucial for reducing agency costs. This lessens the information asymmetry of outsiders by strengthening pledgee supervision, and decreases companies’ risk-taking by adopting a relatively conservative investment strategy that hedges excessive risks. This also reduces the impact of insider control, decreases the interest spread, and increases the length of loan maturity. Further analyses show that the favorable effect of share pledging on bank loan covenants weakens for companies with a higher degree of financing deficit. Additionally, the role of share pledging varies with the agency costs of companies’ insider controls. The effects of share pledging on bank loan terms are more profound for companies with a higher degree of corporate governance performance. Robustness analyses addressing potential endogeneity further confirm our primary conclusions.</div></div>","PeriodicalId":47962,"journal":{"name":"Quarterly Review of Economics and Finance","volume":null,"pages":null},"PeriodicalIF":2.9000,"publicationDate":"2024-09-28","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"0","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"Quarterly Review of Economics and Finance","FirstCategoryId":"96","ListUrlMain":"https://www.sciencedirect.com/science/article/pii/S1062976924001340","RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"Q1","JCRName":"ECONOMICS","Score":null,"Total":0}
引用次数: 0
Abstract
This study investigates debtholders’ responses to controlling shareholders’ share pledging. We found that share pledging by controlling shareholders is crucial for reducing agency costs. This lessens the information asymmetry of outsiders by strengthening pledgee supervision, and decreases companies’ risk-taking by adopting a relatively conservative investment strategy that hedges excessive risks. This also reduces the impact of insider control, decreases the interest spread, and increases the length of loan maturity. Further analyses show that the favorable effect of share pledging on bank loan covenants weakens for companies with a higher degree of financing deficit. Additionally, the role of share pledging varies with the agency costs of companies’ insider controls. The effects of share pledging on bank loan terms are more profound for companies with a higher degree of corporate governance performance. Robustness analyses addressing potential endogeneity further confirm our primary conclusions.
期刊介绍:
The Quarterly Review of Economics and Finance (QREF) attracts and publishes high quality manuscripts that cover topics in the areas of economics, financial economics and finance. The subject matter may be theoretical, empirical or policy related. Emphasis is placed on quality, originality, clear arguments, persuasive evidence, intelligent analysis and clear writing. At least one Special Issue is published per year. These issues have guest editors, are devoted to a single theme and the papers have well known authors. In addition we pride ourselves in being able to provide three to four article "Focus" sections in most of our issues.