The Effect of the Bailout Fund on Share Pledge Risk : Evidence from Chinese Listed Firms

In 2018, the price index of the Chinese A-share market experienced a turbulent loss, exposing many privately listed companies with share pledges to liquidation risk, which might then lead to systematic risks. The central Government encouraged local governments and financial institutions to set up bailout funds to alleviate the share pledge risk of these companies. In this quasi-natural experiment combined with a multi-period difference-in-differences (DID) panel regression model, the study finds that (1) the intervention of a bailout fund can effectively alleviate share pledge risk through three main channels: injecting liquidity into the stock market, restoring market confidence, and relieving financing constraints; (2) cross-regional and debt-based bailout models are more effective and more conducive to mitigating share pledge risk; (3) these findings still hold after using propensity score matching (PSM), DID and placebo tests to alleviate the endogeneity problem