CSR Initiatives of Controlling Shareholder in Share Pledge Firms: Sustainable Orientation or Interim Plan?

Abstract

This paper investigates the effects of share pledge by controlling shareholder on corporate social responsibility and the mechanism through which stock pledge affects CSR. Using a sample of Chinese listed firms from 2008 to 2020, we find that firms with pledging controlling shareholders are more likely to invest in corporate social responsibility (CSR) than other firms. Their CSR also perform better even when all pledge funds are invested to shareholders themselves rather than to the company’s operation. We then provide evidence to show that the motivating effect of stock pledge by controlling shareholder on CSR is related to controlling shareholder’s incentives to improve corporate value to prevent loss of corporate control and reduce the risk of stock price crash. These results consistently suggest that controlling shareholders employ corporate social responsibility as an effective way to reduce the risk of controlling right transfer.