How does controlling shareholders’ share pledging affect green investment? Evidence from Chinese manufacturing firms

Share pledging by controlling shareholders is a high-volume financing mechanism in China, allowing them to raise funds using stock as collateral while retaining voting rights. This study investigates the effect of controlling shareholders’ share pledging on corporate green investment among Chinese A-share manufacturing firms from 2012 to 2024. Results show that a higher degree of controlling shareholders’ share pledging is associated with a decline in green investment. Mechanism analysis suggests that share pledging constrains green investment primarily by reducing firms’ risk-taking incentives, while financing constraints do not constitute a significant transmission channel. Heterogeneity tests indicate that this negative effect is greater in nonheavily polluting industries and in the eastern region, which has a higher level of financial development. When the Environmental Protection Tax Law was implemented in 2018 as an exogenous institutional shock, the results show that green tax policy weakens the negative effect of share pledging on green investment. By linking corporate governance with the institutional environment, this study extends the literature on the economic consequences of share pledging and provides evidence on how institutional design can facilitate the green transition and sustainable development of manufacturing firms.