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Empirical study reveals increased litigation frequency in listed firms with controlling-shareholder equity pledging, indicating that strong local financial regulation mitigates governance risks.
Using Chinese A-share listed firms from 2011 to 2024, this study finds that controlling-shareholder equity pledging significantly increases firms’ litigation frequency. Mechanism evidence indicates that pledging elevates litigation risk by tightening financing constraints and intensifying accrual-based information manipulation. We further show that stronger city-level financial regulation weakens the pledge–litigation relationship. Cross-sectional results suggest that the adverse effect is more pronounced among firms with weaker external governance and non-high-tech firms.
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Yang et al. (2026) studied this question.
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