Corporate financial distress prediction based on controlling shareholder’s equity pledge

ABSTRACT

In the past literature, the prediction model of financial distress mainly used the information of corporate finance and corporate governance, and less considered the predictive effect of controlling shareholder information. Based on the sample of A-share listed companies in China from 2014 to 2019, this paper empirically investigates the incremental effect of controlling shareholder’s equity pledge on improving the accuracy of financial distress prediction. It is found that the information of controlling shareholder’s equity pledge can significantly improve the accuracy of financial distress prediction. After changing the definition of the explained variable and the data source, the conclusion remains robust. This paper verifies the role of controlling shareholder’s equity pledge in predicting financial distress, extends the selection of financial distress prediction model variables to the controlling shareholder level, and enriches the research on the economic consequences of equity pledge.

KEYWORDS:

• Controlling shareholder
• equity pledge
• financial distress
• prediction accuracy

Disclosure statement

No potential conflict of interest was reported by the author(s).