EQUITY PLEDGE, PLEDGOR TYPE AND INVESTMENT EFFICIENCY

Equity pledging is susceptible to agency problems and substantial risk, resulting in inefficient corporate investment. We show the negative impact is not just induced by controlling shareholders but also pledged by non-controlling shareholders and actual controllers. Our results add that SOEs with control rights via controlling shareholders or actual controllers can mitigate investment inefficiency problems. We conclude that pledgor type matters and the impact of non-controlling shareholders’ pledges should not be neglected.