Does share pledging affect firms' use of derivatives? Evidence from China

Haomin Shen, Xiaoke Cheng, Caiyue Ouyang, Ya Li, Kam C. Chan

Research output: Contribution to journalArticlepeer-review

9 Citations (Scopus)

Abstract

We investigate whether share pledging by controlling shareholders affects firms' use of derivatives. Our findings suggest that share-pledging firms are more likely to use derivatives than non-share-pledging firms. In cross-section analyses, we observe that the relationship is more pronounced when the margin call risk is higher, for example, if controlling shareholders own fewer shares, firms are located in regions with higher levels of marketization, or firms have a higher stock price crash risk. Our findings indicate that shares pledged by controlling shareholders steer firms toward the use of derivatives to hedge firm activities and alleviate the margin call risk.

Original languageEnglish
Article number100841
JournalEmerging Markets Review
Volume50
DOIs
Publication statusPublished - Mar 2022

Keywords

  • Derivatives use
  • Margin call
  • Share pledging

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