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Share pledging and earnings informativeness

Xiangyan Shi (School of Accountancy, Shandong University of Finance and Economics, Jinan, China)
Juan Wang (Department of Business, State University of New York at Oneonta, Oneonta, New York, USA)
Xiaoyi Ren (School of Economics and Business Administration, Chongqing University, Chongqing, China)

International Journal of Accounting & Information Management

ISSN: 1834-7649

Article publication date: 3 January 2023

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Abstract

Purpose

The purpose of this paper is to investigate the effect of share pledging by controlling shareholders on earnings informativeness.

Design/methodology/approach

Using a sample of 23,120 firm-year observations from 2003 to 2019 in China, this paper examines how share pledging by controlling shareholders affects earnings informativeness, measured by earnings persistence and earnings response coefficients.

Findings

This paper finds that share pledging by controlling shareholders makes earnings less informative. The adverse impacts are more pronounced when share pledging distorts incentives of controlling shareholders to a greater extent and when the signaling of share pledging about a firm’s weak future performance is stronger. Finally, this paper further shows that the 2018 new regulation on share pledging effectively alleviates the negative impacts of share pledging on earnings informativeness.

Originality/value

First, this paper adds to the growing literature on the economic consequence of share pledging by documenting the adverse impacts of share pledging on earnings informativeness. The literature on the economic consequence of share pledging is often mixed, which justifies further research on the impacts of share pledging on earnings informativeness. Second, this paper documents a new signaling channel through which share pledging affects earnings informativeness. Third, the finding of this paper on the 2018 new regulation on share pledging may be interesting to research agencies, such as the Chartered Financial analyst institute and Institutional Shareholder Services institute that recommend tightening regulations on share pledging.

Keywords

Citation

Shi, X., Wang, J. and Ren, X. (2023), "Share pledging and earnings informativeness", International Journal of Accounting & Information Management, Vol. ahead-of-print No. ahead-of-print. https://doi.org/10.1108/IJAIM-09-2022-0195

Publisher

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Emerald Publishing Limited

Copyright © 2022, Emerald Publishing Limited

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