Do Controlling Shareholders Who Pledged Their Shares Affect Sustainable Development? An Investigation Based on the Perspective of Corporate Innovation

We examine the impact of share pledging (SP) on a firm’s innovation using a sample of Chinese firms. Our findings show that when controlling shareholders pledged their shares in personal loans, their firm’s innovation decreases. Our findings are robust for alternative metrics of innovation and SP. Additional analyses suggest that when controlling shareholders have little ownership or stock price volatility is high, the impact of SP on corporate innovation magnifies, presumably due to the high margin call risk of share against the pledged controlling shareholders. Overall, our study shows that the self-interest of controlling shareholders with pledged shares impedes corporate innovation, thereby impeding the sustainable development of society.