Research on the influence of equity pledge on stock price crash risk: based on financial shock of 2015 stock market crisis

Abstract

The 2015 Chinese stock market crisis triggered liquidation because of equity pledge so that the leverage effect of the small probability event with severe results got intensive attention from investors. It is found that the effects of equity pledge on stock price crash risk reversed significantly before and after the 2015 stock market crisis. In the mechanism analysis, we further find that the equity pledge influenced the stock price crash risk by longer suspension and greater price fluctuation. The shareholding ratio of institutional investors and information environment also had a significant moderating effect on the influence of equity pledge on stock price crash risk. Alternative interpretation tests excluded the tunnel effect and pressure effect by shareholders and incentive effect by management. This study by analysing empirical data provides evidence on the change of investors’ risk recognition, which is caused by financial shock, in the Chinese capital market.