Does Insiders’ Share Pledging Improve Stock Liquidity? Evidence from China

Abstract: In this paper, we investigate the effects of insiders’ share pledging on stock liquidity. Using a sample of Chinese listed firms from 2007 to 2021, we find a positive association between share pledging and stock liquidity. The findings are robust to a series of robustness tests. Further analysis shows that stock repurchases and share increases may be the underlying mechanisms driving the effect of share pledging on improving stock liquidity. In summary, our findings suggest that share pledging is another important determinant that affects the firm’s market quality