SHARE PLEDGING AND STOCK PRICE DYNAMICS: A SYSTEMATIC REVIEW OF THEORETICAL AND EMPIRICAL EVIDENCE
DOI:
https://doi.org/10.65009/m3yj0v48Keywords:
Share Pledging; Stock Price Dynamics; Stock Price Volatility; Stock Price Crash Risk; Corporate Governance; Firm Risk.Abstract
The pledging of shares is a common financing tool that enables the controlling
shareholders to release funds without losing either their voting power or ownership. But
there could be potential for financial risk, share price volatility and governance issues
if a firm does a lot of share pledging. This study presents a systematic review of the
literature on the connection between share pledging and stock price movements from
2015 to 2022. The use of share pledging can provide controlling shareholders with
liquidity while giving them control over the shares, but it can also bring about greater
financial risk and instability. The review is conducted via Agency Theory, Information
Asymmetry Theory, Signalling Theory and Financial Distress Theory and draws on key
academic research. The results indicate that high promoter involvement in pledging
leads to a higher stock price volatility, higher crash risk, higher firm risk, and lower
performance. Good governance, transparency and institutional monitoring are also
essential in reducing pledge related risks and enhancing market stability, the study also
emphasizes.
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