This study examines whether share pledging by controlling shareholders improves investment efficiency in India. Using a panel of 1,167 listed firms from 2009 to 2023, we find that pledging improves investment efficiency by simultaneously reducing overinvestment (12.41%) and underinvestment (3.62%), effects confirmed through channel analyses showing that creditor monitoring drives the overinvestment reduction, while financing access drives the underinvestment reduction. These effects are stronger in financially constrained and group-affiliated firms. Findings are robust to alternative constraint proxies, including the size–age index and size tercile, an augmented investment model, propensity score matching, and Oster omitted variable bias bounds. JEL Codes: G30, G31, G32, G38, M41, O16
Behera et al. (2026) studied this question.