A Study on the Impact of Equity Pledges by Controlling Shareholders of Listed Firms in China on Corporate Social Responsibility

Abstract

Using equity pledge financing has gradually become one of the most important shareholders' low-cost alternatives to corporate bond financing. At first glance, "The better the social performance of the controlling shareholder, the higher their pledge ratio" may seem counterintuitive. Is this a general phenomenon or an isolated case? What are the reasons behind it? What are the economic consequences? This paper attempts to answer these three questions by studying the impact of controlling shareholders' equity pledges on corporate social responsibility (CSR). By empirically analyzing CSR reports of listed companies from Hexun from 2010 to 2020, the study concludes that the pledge of controlling shareholders' equity is negatively correlated with CSR performance. Mechanism analysis shows that financing constraints reduce CSR obligations, while the pledge of equity still plays a significant negative role in CSR after considering financing constraints, indicating partial mediation. It also concludes that agency costs are significantly effective in reducing CSR obligations; after considering agency costs, the pledge of equity continues to have a negative impact on CSR, indicating partial mediation.