Monetary policy, assets mispricing and share pledge: empirical evidence from A-share listed companies of China

Abstract

Based on the influencing factors of share pledging, this paper discusses the influence of asset mispricing on the share pledging decision-making of controlling shareholders and examines the differences in the impact of different monetary policies using China’s A-share listed firms from 2007 to 2018. This study found that when the share price is overvalued, the share pledging enthusiasm of controlling shareholders increases, and the scale of share pledging expands. Further examination found that the enthusiasm and the scale of share pledge of controlling shareholders increase significantly with the increase in the overvaluation level of the share price. When the monetary policy tends to be loose or the interest rate is low, the enthusiasm for share pledging increases, and the scale of share pledge expands, which is more obvious when the stock price is overvalued. This study indicates that the capital market is not perfect, and insiders represented by controlling shareholders can identify investors’ cognitive biases, respond to asset mispricing in time, and raise more funds.

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