Stock Pledging by Individual Shareholders and Abnormal Returns : Evidence from China

In recent years, stock pledge financing has prevailed in China. Individual shareholders’ stock-pledge announcements often release a signal for financing, thus causing abnormal stock-price fluctuations. Our paper focuses on the pledges by individual controlling shareholders between 2006 and 2020 and investigates, through event study (ES) analysis, the market reaction before and after the actual date of a stock pledge (the pledge date). Our paper shows that there is a plunge in abnormal returns on stock prices before the pledge date. After the pledge occurred, however, the stock price returns to normal and hardly has negative abnormal returns. Additionally, the manufacturing industry has the maximum amount of stock pledges and sees the most obvious pre-pledge decrease of abnormal returns. Such a decrease, as we find, is caused by institutional investors’ sell-offs