Controlling shareholder pledging and corporate ESG behavior

Abstract

Utilizing a large sample of Chinese listed firms, we document strong and robust evidence that both firms’ environmental, social, and governance (ESG) performance and their ESG disclosure quality deteriorate significantly after controlling shareholders’ pledging of their shares for personal loans. The results are especially evident among firms with higher valuation uncertainty, such as small firms and high-tech firms. Lastly, we show that external monitoring by institutional investors helps to mitigate such adverse impacts of controlling shareholder pledging.