Controlling Shareholders’ Stock Pledge and Institutional Shareholding : Evidence from China

This paper examines the impact of controlling shareholders' stock pledge on institutional shareholding using the sample of Chinese listed firms. Stock pledge means shareholders use stock of listed firms as the pledged assets to apply for loans. Using the sample of Chinese listed firms during the period of 2005 to 2015, this paper documents controlling shareholders' stock pledge decreases institutional shareholding significantly and such relation is more remarkable in the subsample of firms facing more tunneling activities conducted by controlling shareholders. Additionally, using the method of test on mediating effect, this paper finds that controlling shareholders' stock pledges reduce institutional shareholding through decreasing cash dividends. Collectively, these findings document that institutional investors are sophisticated investors for they always take account for risks owing to controlling shareholders' stock pledges when selecting stock