Insider share pledging and firm value consequences under the COVID-19: evidence from China

Abstract

<p>Share pledging, the practice in which shareholders secure a loan using their shares, has become a global phenomenon in recent years. In this paper, we investigate the effect of such corporate <em>insider</em> actions on <em>outsider</em> wealth during the pandemic. Concretely, we examine how firms’ market value change when corporate insiders pledge their shareholdings during China’s COVID-19 outbreak. It is found that market investors responded adversely to share pledging announcements by firms in the high pandemic-affected regions. Besides, the state ownership and better corporate governance structures of the pledged firms could mitigate such adverse impacts. Our study highlights a specific externality generated by corporate insiders to outside shareholders during a crisis period.</p>