In an evolving stock market landscape characterized by diversified participants, the personal financial behavior of corporate insiders has garnered much attention, especially concerning its impact on stock liquidity. A key financial behavior under scrutiny is share pledging, where corporate insiders use their shareholdings as collateral for personal loans. Using a sample of Chinese listed firms from 2007 to 2021, this study examines the relationship between insiders’ share pledging and the stock liquidity of listed firms, as well as possible underlying mechanisms. Our analysis reveals a positive association between share pledging and stock liquidity. The findings withstand a series of robustness tests. Further analysis shows that stock repurchases and increased shareholdings may be the underlying mechanisms driving the positive effect of share pledging on stock liquidity. Our results have significant implications for regulators managing liquidity risk and offer valuable insights for other stakeholders. As insiders’ personal financial behavior significantly impacts the sustainable quality of securities markets, investors, managers, and analysts can benefit from understanding the influence of share pledging on stock liquidity.
Zhang et al. (2026) studied this question.