Do insiders facing pledging risks make risky corporate investments? Evidence from Chinese M&As. Issue 2 (4th March 2023)

• Record Type: Journal Article
• Authors: Tang, Qingquan; Guo, Jingjing; Zeng, Shiyun
• Is Part Of: Asia-Pacific journal of accounting & economics. Volume 30:Issue 2(2023)
• Page Start: 354
• Page End: 372
• Publication Date: 2023-03-04
• Subjects: Share pledges -- controlling shareholders -- M&A decisions -- risk of losing control; Accounting -- Periodicals; Accounting -- Pacific Area -- Periodicals; Economics -- Periodicals; Pacific Area -- Economic conditions -- Periodicals; 657
• DOI: 10.1080/16081625.2021.1887747
• Languages: English
• ISSNs: 1608-1625

Abstract

ABSTRACT: Prior studies find that insiders facing pledging risks pass up risky projects to preserve their private benefits of control. However, we find that firms with controlling shareholders' share pledges (CSSP) tend to initiate mergers and acquisitions (M&As), which signal good news and prevent the stock price from falling. This phenomenon is more pronounced in non-state-owned enterprises (non-SOEs) and firms with negative market responses on the announcement date of share pledges. Additionally, due to cost control considerations, a firm with CSSP will choose small-size targets and complete M&As in a short time. Nevertheless, the long-term performance of such M&As is worse.