Top Managers' Pledging: Determinants and Effects

Abstract

This paper examines the determinants and financial effects of share pledging by executives and directors. The sample includes more than 1,000 nonfinancial companies listed in S&P1500 from the fiscal year of 2010 to 2014. The results from the empirical tests suggest that the occurrence of pledging is influenced by the firm size, executives age, the percentage of shares held by executives and CEO tenure. In the second part of the study to find financial effects of pledging, the empirical results indicate that earnings management using accruals occurs more frequently in companies where shares are pledged by executives. Finally, share-pledging by executives heightens stock return volatility when tested without control variables. This paper is meaningful as it is the first to study the determinants and financial effects of pledging, in addition to being the first to study executives share pledging as the main topic.