
==== Front
Heliyon
Heliyon
Heliyon
2405-8440
Elsevier

S2405-8440(24)13504-9
10.1016/j.heliyon.2024.e37473
e37473
Research Article
Do controlling shareholders' equity pledges exacerbate the stock price crash risk? -A study based on margin trading and securities lending transactions in China's securities market
Wang Liang wangliang@xaut.edu.cn
⁎
Cao Ziqiu
Cao Wenyan
School of Economics and Management, Xi'an University of Technology, Xi'an 710054, China
⁎ Corresponding author. wangliang@xaut.edu.cn
05 9 2024
30 9 2024
05 9 2024
10 18 e3747319 1 2024
27 8 2024
4 9 2024
© 2024 The Authors
2024
https://creativecommons.org/licenses/by-nc/4.0/ This is an open access article under the CC BY-NC license (http://creativecommons.org/licenses/by-nc/4.0/).
It clarifies the influence mechanism of controlling shareholders' equity pledges, margin trading and securities lending, and stock price crash risk from the perspective of corporate governance, etc. This paper establishes a main and interaction effect regression model to empirically test the impact mechanism of controlling shareholders' equity pledge on stock price crash risk and the moderating effect of margin trading and securities lending in the process of this impact based on the measures of stock price crash risk, controlling shareholders' equity pledge level, as well as margin trading and securities lending transaction size, using China's A-share listed companies from 2010 to 2020 as the sample. It finds that: (i) The higher the controlling shareholder's equity pledge ratio of listed companies, the lower the stock price crash risk. (ii) There is no significant effect of margin trading and securities lending transactions on stock price crash risk. (iii) Securities lending transactions have a positive moderating effect in the impact of controlling shareholders' equity pledges on stock price crash risk, but the moderating effect of margin trading transactions is insignificant.

Keywords

Controlling shareholders' equity pledges
Margin trading and securities lending
Stock price crash
Moderating effect
==== Body
pmc1 Introduction

Controlling shareholders' equity pledges refers to pledging their shares to obtain funds, releasing the charge in the future, and returning the funds. China's capital market is currently in full swing with the equity pledge financing business. Data from Wind information shows that as of December 2021, the number of shares pledged by shareholders in China's A-share market reached 534,543 million stocks, involving 2882 listed companies. Although equity pledges enable controlling shareholders to obtain valid financing while retaining their control, they may be exposed to higher debt pressure and risk of control transfer due to market uncertainties, which may induce a stock price crash.

After the pilot margin trading and securities lending in 2010 and the six expansions from 2011 to 2019, the number of stocks available for margin trading and securities lending transactions in China's A-share market has reached 1600. Both margin trading and securities lending have provided investors with new hedging tools, as investors can use financing to buy stocks or securities trading to sell stocks short, which is a two-way trading mechanism that enhances the liquidity of the stock market. However, securities lending transactions account for a relatively small proportion of the two transactions, so the scale of margin trading and securities lending transactions is still a “lame-duck” phenomenon. Meanwhile, the size of margin trading is large enough to induce investors to follow the trend and eventually cause the share prices of listed companies to deviate significantly from their fundamental values and form price bubbles. The small scale of securities lending creates definite conditions for management to cover up unfavorable information, but stock price crash risk may increase sharply when such information accumulates to a certain extent. For example, Kangde Xin Composite Material Group Co., Ltd. (002450. SZ) and Shanghai U9 Game Co., Ltd. (600,652. SH), which had been among the two underlying stocks for financing, collapsed in 2019 due to poor performance and untimely information disclosure.

Numerous scholars debate the consequences of controlling shareholders' equity pledges. Some scholars believe that equity pledges will intensify conflicts among shareholders, eventually leading to the company's distress and triggering a stock price crash [1,2]. However, some scholars take the opposite view that controlling shareholders' equity pledges can alleviate the company's financial difficulties and contribute to improving the company's operating performance to avoid the stock price crash risk [3,4]. Furthermore, controlling shareholders may take the initiative to take measures such as surplus management and information manipulation to prevent a significant drop in the company's share price for consideration of maintaining their control. Therefore, will controlling shareholders' equity pledges exacerbate the occurrence of stock price crash risk? What is the impact of margin trading or securities lending on controlling shareholders' equity pledges and stock price crash risk at this time if a pledged stock is also the subject of margin trading or securities lending? These are all questions that deserve further exploration.

The main contributions of this paper are as follows. First, the existing literature mainly explores the direct impact of controlling shareholders' equity pledges or margin trading and securities lending on stock price crash risk [1,5]. While this paper establishes a theoretical analysis framework on the mechanism of controlling shareholders' equity pledges' impact on stock price crashes based on the perspective of margin trading and securities lending, it enriches the related research on the formation mechanism of stock price volatility. Second, existing studies have mainly used transparency of information disclosure and surplus management as mediating variables to explore the influence path of controlling shareholders' equity pledges on stock price crash risk [6,7], but this paper takes into account the particular position of the equity pledgee as controlling shareholders, and it will impact the company's control and stock price if the equity become liquidated by forced liquidation, so it uses “MARGIN_CALL” as a mediating variable to analyze the intrinsic relationship between the two. Based on that, it further empirically tests the role of margin trading and securities lending in regulating the effect of controlling shareholders' equity pledges on stock price crash risk, which provides new theoretical support for the mechanism of controlling shareholders' equity pledges. Third, the existing literature does not investigate the asymmetric impact of the margin trading and securities lending system on stock price crash risk in China's securities market. However, this paper explores the heterogeneous role of margin trading and securities lending in the impact of controlling shareholder equity pledges on stock price crash risk, respectively. The empirical study finds that securities lending transactions in China's securities market have a positive moderating effect on the impact of controlling shareholder equity pledges on stock price crash risk, but the moderating effect of margin trading transactions is not significant. Therefore, it further confirms the heterogeneity of the impact of margin trading and securities lending.

2 Literature review and research hypothesis

2.1 Controlling shareholders' equity pledges and stock price crash risk

Stepanov & Suvorov [8] argued that the highest percentage of shareholding is the controlling shareholder. When the controlling shareholder settles its capital needs by pledging equity, it usually means that the controlling shareholder is cash-strapped and has a severe lack of financing capacity at this time. In a realistic situation where the overall degree of investor education in China's securities market is insufficient or the internal and external governance environment of listed companies needs to be improved, the controlling shareholders' equity pledges may be over-interpreted by the market and further magnify stock price crash risk. Furthermore, Zhou et al. [1] pointed out that stock pledges can contribute to the precipitation of negative news, thus increasing stock price crash risk during the pledging period.

Although the share pledge itself may induce a stock price decline and plunge the company into a stock price crash crisis, Chang, Meng & Ni [4] argued that it may instead prompt creditors to increase their monitoring of the firm, controlling shareholders to take steps to guard against risks, and analysts to be more optimistic about the earnings expectations of the firm's stock [9]. The reason is that controlling shareholders' control is a prerequisite for maximizing shareholder value. However, the higher the equity pledge ratio, the more probability that controlling shareholders will lose their controlling position. Some scholars believe controlling shareholders will maintain control by improving operational performance [3]. For example, some scholars found that after the controlling shareholder's equity pledge, it will have a stronger incentive to improve the company's operating performance due to concerns about the replenishment of guarantees and the risk of control transfer. Meanwhile, according to the relevant provisions of China's Guarantee Law, the controlling shareholder's management decision-making power remains unchanged after the equity pledge, which will help to stabilize the listed company's stock price and create conditions for it to avoid the stock price crash risk. Wang & Chou [10] pointed out that the equity pledge alleviates the company's financial distress, which helps the listed company's operating performance and effectively prevents excessive stock price volatility. Moreover, some scholars argued that controlling shareholders can stabilize a company's stock price and reduce the risk of stock price collapse through information manipulation and other means [11]. For example, some scholars discovered that listed companies could improve their self-image by increasing charitable donations, which enhances the company's reputation declined due to negative messages, thus keeping the stock price stable.

It shows that the literature related to controlling shareholders' equity pledges and stock price crash risk believed that equity pledges would prompt listed companies to carry out information manipulation or improve operational performance, thus stabilizing the stock prices and reducing the risk of stock price crash to a certain extent [4,10]. However, whether the stock price reaches the closeout line is a direct factor for its volatility, so this paper argues that the mandatory closeout of pledged equity has a direct impact on the company's control, stock price, etc., which results in the volatility of the stock price, and the controlling shareholders, to avoid such a situation and guard against the risk of transferring control, have a strong willingness to improve the company's operational performance, which in turn leads to the reduction of the risk of a stock price crash. It proposes the following hypothesis based on the above analysis.H1 The higher the shareholding pledge ratio of a listed company's controlling shareholder, the lower the risk of a stock price crash.

2.2 Margin trading and securities lending transaction and stock price crash risk

2.2.1 Margin trading transaction and stock price crash risk

Scheinkman, Bolton & Xiong [12] argued that the margin trading facility in China's A-share market creates leveraged trading opportunities for investors. Nevertheless, Stein [13] found that the mechanism may have contributed to speculative behavior in the market. Meanwhile, speculative behavior further causes stock prices to rise sharply, which leads to the risk of stock price collapse. However, margin trading transactions may induce the illusion of increased private wealth of shareholders while triggering the stock price increase in the short term, and the controlling shareholders may require the company management to continuously deliver favorable information to the outside world to ensure the sustainability of the stock price increase. Ma, Tang & Zheng [14] found that management under pressure may strengthen corporate governance and improve investment efficiency to cater to the market, which may lead to company value increase and thus reduce stock price crash risk. Moreover, Kahraman & Tookes [15] and Zhong, Li & Wang [16] discovered that the leverage effect of margin trading transactions not only amplifies the gains or losses of speculators and arbitrageurs but also exposes them to higher liquidity risk. If the scale of margin trading transactions is significant, speculators such as “bankers” are deterred from making profits through stock price manipulation, which may inhibit the stock price crash caused by excessive stock selling.

In conclusion, scholars have conducted more in-depth research on the relationship between margin trading transactions and stock price crash risk, but have not yet reached a consistent conclusion. Some scholars believe that margin trading transactions increase market speculation and trigger the stock price crash risk [12,13]. Another part of scholars, based on the stock price manipulation perspective, argues that it suppresses the risk of stock price crashes of listed companies to a certain extent as the amount of margin trading transactions increases [15]. Therefore, this paper will further empirically test the role of margin trading transactions on stock price crash risk to provide new theoretical support for its mechanism of action. It presents the following hypothesis based on the above analysis.H2 The stock price crash risk decreases as the size of margin trading transactions increases.

2.2.1.1 Securities lending transaction and stock price crash risk

Hutton, Marcus & Tehranian [17] argued that the continued precipitation of negative information could induce stock price crashes. The securities lending mechanism provides investors a channel and opportunity to enter the market and transmit private information. When investors are bearish, they can short-sell the stock, and such a trading mechanism can inject negative information that investors have into the market to some extent. Chen, Kadapakkam & Yang [18] further found that negative news released by securities lending traders affects creditors' decisions and increases the cost of debt for listed firms, thus affecting firms' stock prices. However, some scholars pointed out that China's adoption of a delivery-guaranteed system for securities lending can restrain speculative behavior and mitigate the impact of negative messages on stock prices. Meanwhile, while improving the efficiency of price discovery in the securities market, the securities lending trading mechanism also increases the accuracy of investors' prediction of potential risks, which may lead to higher financing costs and operating costs for listed companies. So controlling shareholders and management will recognize the problem of stock price decline due to the disclosure and spread of negative information, thus consciously controlling their short-sighted behavior. The ex-ante deterrence effect of the securities lending mechanism prevents the risk of stock price crashes to a certain extent. Moreover, if informed traders engage in large-scale securities lending transactions, it will cause the stock price to fall and eventually put the company in a disadvantageous position. It is also the “ex-post punishment” governance mechanism of the securities lending mechanism. Therefore, Li & Zhang [19] showed that, under the “deterrence” of the punitive effect of securities lending, controlling shareholders and management will strive to improve the transparency of corporate information disclosure. Deng & Gao [5] argued that preventing negative information from precipitating and trying to avoid its sudden emergence and impact on the stock price will be a strategy to curb the stock price crash risk.

In conclusion, there is a debate in the existing literature about the impact of securities lending transactions on the risk of stock price crashes, with some scholars arguing that securities lending transactions allow negative information to spread and cause stock price volatility [18]. However, another part of scholars believe that as the amount of securities lending transactions increases for short selling, the controlling shareholders will prevent the negative information from precipitating and effectively suppress the stock price crash risk [5]. Therefore, more evidence is needed to provide new theoretical support for the mechanism of securities lending transactions and stock price crash risk. It proposes the following hypothesis based on the above analysis.H3 As the size of securities lending transactions increases, the stock price crash risk decreases.

2.3 The moderating effect of margin trading and securities lending in the impact of controlling shareholders' equity pledges on stock price crash risk

2.3.1 The moderating effect of margin trading transactions

Chowdhry & Nanda [20] pointed out that during the upward phase of the market, investors have optimistic market expectations, and the leverage effect of margin trading may bring them high returns, so this attracts more investors to focus on margin trading, which further leads to higher stock prices. For listed companies lacking performance support, the price bubble generated by margin trading may lower the vigilance of the controlling shareholders, weaken their awareness of stock price crash risk, and intensify the occurrence of stock price crash risk. Meanwhile, if the size of margin trading transactions is massive, but when the stock price shows a downward trend, driven by investors' deleveraging strategy, it may accelerate the stock price decline and lead to a more severe stock price crash risk. Franco & Diaz [21] argued that controlling shareholders or management have an information advantage over outside investors and that controlling shareholders' equity pledging behavior can convey negative information to the market about the poor financing ability of listed companies. For listed companies with poor business performance, equity pledges are easily over-interpreted by market investors, which may change market expectations and increase the stock price crash risk.

When the listed company has good operating performance, even though the equity pledge may have a negative impact, investors will finance to buy shares under the incentive of leverage amplification effect and positive performance expectation. Some scholars argued that margin trading transactions at this time will facilitate the stock price of listed companies to climb, while the resulting wealth effect incentive will stimulate shareholders and management to continue to improve corporate governance. Du & Deng [22] pointed out that this situation will help the stock price of listed companies to stabilize. Therefore, for companies with good operating performance, margin trading transactions will promote the dampening effect of equity pledges on stock price crashes when market conditions are promising. However, when the stock price shows a downward trend, the leverage effect of margin trading transactions may exacerbate market traders' emotional volatility, leading to loss aversion and making investors more sensitive to bad news. Meanwhile, they showed that the deleveraging effect of margin trading exacerbates the stock price decline.

It is clear that scholars have already analyzed in depth the relationship between margin trading transactions and stock price crash risk at different quotation stages in the case of equity pledges [22], but no literature has yet examined the direct relationship between the three, not to mention analyzing whether margin trading transactions have an inhibitory impact in the process of controlling shareholders' equity pledges' influence on the risk of stock price crashes. Therefore, this paper analyzes the moderating effect of margin trading short-buying transactions in influencing the two, filling the research gap in this perspective. It presents the following hypotheses based on the above analysis.H4 The margin trading mechanism can weaken the dampening impact of controlling shareholders' equity pledges on the stock price crash risk through a moderating effect.

H5 The margin trading mechanism may have an inverted U-shaped moderating effect on the impact of controlling shareholders' equity pledges on stock price crash risk.

2.3.2 The moderating effect of securities lending transactions

Zhang, Cui & Li [23] found that investors' different expectations lead to diverse investment behaviors. If they have positive expectations, they will buy the stock to gain. Otherwise, they will sell the stock to prevent potential losses. If it restricts securities lending, investors with pessimistic expectations will not be able to trade stocks through securities lending transactions, and the market will reflect the behavior of optimistic investors or speculators, which will result in the overvaluation of stock prices. Practical experience shows that the stock prices included in the underlying pool of margin trading and securities lending in China's A-share market have been reduced to varying degrees and have demonstrated a trend of returning to their fundamental values. For example, Charoenrook & Daouk [24] pointed out that securities lending transactions have a price discovery function and reduce stock price volatility. Meanwhile, they showed that the introduction of the securities lending system provides informed traders with a channel to transmit information to the securities market, which improves the efficiency of stock pricing and also makes the stock price close to its actual value, which is conducive to curbing the excessive rise of stock prices. Hong, Kubik & Fishman [25] further discovered that the larger the scale of securities lending transactions, the stock price of listed companies will incorporate more information. Furthermore, under the dual pressure of securities lending “deterrence” and the negative impact of equity pledges, controlling shareholders and management of listed companies may actively or passively improve the disclosure efficiency of pledged stocks so that negative information can quickly reflect in the stock price. Such a situation effectively reduces the cost of external supervision of the company and restrains the short-sighted behavior of the management and controlling shareholders, which will help improve the operating performance and stabilize the stock price of the listed company and thus effectively reduce the stock price crash risk.

In conclusion, the literature has analyzed the relationship between securities lending transactions and stock price crash risk, and controlling shareholders' equity pledges and stock price crash risk [25]. However, listed companies may have both equity pledges and securities lending transactions, and whether securities lending transactions can moderate the relationship between controlling shareholders' equity pledges and stock price crash risk has not been studied in the literature. Therefore, this paper analyzes the moderating effect of securities lending transactions in influencing the two, which provides a new perspective to study the stock price crash risk. It proposes the following hypothesis based on the above analysis.H6 The securities lending mechanism has a positive moderating effect on the impact of controlling shareholders' equity pledges on stock price crash risk.

3 Research design

3.1 Sample selection and data sources

In 2010, China's capital market allowed enterprises to engage in margin trading and securities lending transactions for the first time, so this paper takes 2010–2020 as the sample interval, which makes the sample length more adequate to ensure the reliability of the empirical results. Furthermore, it excludes GEM-listed companies, ST and *ST companies, financial companies, companies with missing data, and companies in the sample interval without controlling shareholders' equity pledges. Meanwhile, considering the lag of share price crash risk, the sample interval of stock price crash risk is 2011–2020, and the sample interval of the explanatory and control variables is 2010–2019, which finally obtains 383 listed companies with a total of 3830 sample values. The data in this paper are from Wind information, Choice database, and CSMAR database. The principal regression process is completed through Eviews 7.2 and Stata 16. Moreover, to avoid the influence of extreme values, this paper performs 1 % tail shrinkage on continuous variables.

3.2 Variable selection and metrics

For testing the research hypotheses, this paper uses stock price crash risk as the explained variable, controlling shareholders' equity pledge ratio as the explanatory variable, and “MARGIN_CALL” as the mediating variable of the impact of controlling shareholders' equity pledge on stock price crash risk. Meanwhile, it chooses the ratio of interval margin trading amount to market capitalization outstanding and the ratio of interval securities lending amount to market capitalization in circulation as the moderating variables for the impact of controlling shareholders' equity pledges on stock price crash risk. Furthermore, drawing on the studies of Deng & Gao [5], it selects the relevant control variables in this paper.

3.2.1 The stock price crash risk

Stock price crash is an essential indicator of abnormal stock price volatility, which is mainly measured based on stock prices, stock index returns, and their volatilities. Referring to the study of Deng & Gao [5], the negative conditional return skewness (NCSKEW) reflects the tendency of negative volatility of company earnings. Hence, this paper selects NCSKEW as a proxy variable to measure the stock price crash risk. First, the market-adjusted return of stock i is(1) ri,s=α+β1,i*rm,s−2+β2,i*rm,s−1+β3,i*rm,s+β4,i*rm,s+1+β5,i*rm,s+2+εi,s

Where ri,s is the return of stock i in the week s of the year, rm,s is the return of all stocks in week s weighted by their outstanding market capitalization on the average. Meanwhile, drawing on Kuttu [26], it adds two lagged terms rm,s−2, rm,s−1, and two ahead terms rm,s+1, rm,s+2 of rm,s. It calculates the adjusted market-adjusted return (Wi,s) of stock i from the residual (εi,s) obtained from the regression of model (1), i.e., Wi,s=ln(1+εi,s). The stock crash risk is represented by the negative skewness (NCSKEW) of Wi,s as follows.(2) NCSKEWi,t=−[n(n−1)3/2∑Wi,s3]/[(n−1)(n−2)(∑Wi,s2)3/2]

Where n is the total number of trading weeks of stock i in year t. The larger the value of stock price crash risk (NCSKEWi,t) calculated according to model (2), the higher the stock crash price risk of stock i in year t.

3.2.2 Level of controlling shareholders' equity pledges

Controlling shareholders' equity pledges is an act by which controlling shareholders pledge their shares to obtain funds. Referring to the study of Liu & Tian [27], the ratio of the accumulated pledged shares not yet released by the controlling shareholder to its shareholding represents the extent of equity pledging by the controlling shareholder. Therefore, the ratio of the cumulative number of pledged shares not yet released by the controlling shareholder to its shareholding at the end of year t of company i represents its equity pledge level (PLEDGEi,t).

3.2.3 Margin call

Drawing on Chan et al. [28], the pledgee sets a closing line for controlling its risk when it signs the equity pledge contract. The listed company needs additional collateral or security if the share price falls to the closing line. Otherwise, the pledgee will dispose of the pledged shares by selling them in the secondary market or by auction, and the controlling shareholder will face the risk of control transfer. This paper distinguishes whether the listed company's share price reaches the closing line (MARGIN_CALLi,t) by setting a dummy variable so that arriving at the closing line is 1 and 0 otherwise.

3.2.4 Margin trading and securities lending transaction size

When investors' accounts are short of funds or securities, they can use margin trading to buy stocks or short-sell stocks with securities lending, thus profiting from future stock prices when they reach the expected rise or fall. Referring to the study of Saffi & Sigurdsson [29], to examine the impact of margin trading and securities lending transactions on the relationship between equity pledging and crash risk, it selects the ratio of margin trading amount (securities lending amount) to market capitalization outstanding in year t of listed company i as the moderating variable to dynamically reflect the margin trading (securities lending) transaction scale of listed company i in year t, which records as variables LONGi,t,SHORTi,t respectively.

3.2.5 Control variables

Drawing on the studies of Deng & Gao [5] and Zhou et al. [1], the control variables included in the empirical model and their calculations are as follows.(i) The average return (RETi,t) is the average of the weekly return specific to companies, which used to comprehensively evaluate the operating performance and effect of the listed company in the current year. Referring to the study of Kahraman & Tookes [15], the higher the annual return of the stock indicates that the company is more profitable, so the probability of falling into financial difficulties is relatively low.

(ii) The return volatility (SIGMAi,t) is the standard deviation of the weekly return specific to companies. Zhou et al. [1] showed there is a relationship between the volatility of individual company stock returns and the stock price crash risk.

(iii) The leverage ratio (LEVi,t) is the ratio of debt to total assets. According to Hutton, Marcus & Tehranian [17], When the company's financial leverage is high, the debt service pressure and cash flow pressure are higher, which affects the stock price crash risk.

(iv) The shareholding concentration (TOP1i,t) is the shareholding ratio of the first largest shareholder. According to the principal-agent theory and La Porta, Lopez-de-Silanes & Shleifer [30], the higher the shareholding ratio of the first largest shareholder, the more likely it is to regulate the management's behavior and reduce the stock price crash risk.

(v) The stock turnover rate (TURNi.t) is the monthly average stock turnover rate. Drawing on Kim, Li & Zhang [31], it usually judges the strength of stock liquidity and is also an important indicator to assess the activity level of securities market trading.

(vi) Market-to-book ratio (MBi,t) is the ratio of market capitalization to net book value of equity. According to Anderson & Puleo [32], it usually evaluates whether a listed company's stock is worth buying.

(vii) The P/E ratio (PEi,t) is the ratio of stock price to earnings per share. Drawing on Houmes & Chira [33], the size of the P/E ratio depends on the stock valuation and returns, the valuation of stocks with good growth is generally higher, so its P/E ratio is relatively large. Otherwise, the valuation and P/E ratio of stocks with lower growth are lower.

(viii) The size of the company (SIZEi,t) is the natural log of total assets. According to Deng & Gao [5], it affects the company's investment decisions and business performance, thereby changing the stock price.

(ix) Referring to Xu et al. [34], whether state-holding companies or not (SOEi,t) makes a significant difference in government support and ease of access to resources and impacts stock price volatility. Therefore, this paper distinguishes SOEi,t by setting dummy variables, letting state-holding companies be 1, and 0 otherwise.

Based on other related studies on stock price crash risk, this paper also controls for stock price crash risk in period t (NCSKEWi,t) and sets year and industry dummy variables to control for year effects and industry effects.

3.3 Multivariate regression models for panel data

3.3.1 The impact of controlling shareholders' equity pledges on stock price crash risk

It develops the following main effects regression model to explore the impact of controlling shareholders' equity pledges on stock price crash risk.(3) NCSKEWi,t+1=c+α1PLEDGEi,t+βiControlsi,t+∑YEAR+∑IND+εi,t

According to the Guarantee Law issued by China in 2007, there is no margin system for equity pledges of listed companies and their controlling shareholders, but a closing line system is adopted. When the share price falls to the closing line, the listed company needs to provide additional security or collateral. Otherwise, the controlling shareholder faces the risk of transferring control, and to avoid such a situation, the controlling shareholder may have a strong incentive to maintain the stability of the share price. Therefore, to further explore the mechanism of the role of controlling shareholders' equity pledges in influencing the stock price crash risk, drawing on the studies of Li & Xing [6], this paper takes MARGIN_CALLi,t as the mediating variable and uses stepwise regression method by Baron & Kenny [35] to establish Eqs. (4), (5). Fig. 1 illustrates the mediating effect test procedure.(4) MARGIN_CALLi,t=c+δ1PLEDGEi,t+βiControlsi,t+∑Year+∑Industry+εi,t

(5) NCSKEWi,t+1=c+αPLEDGEi,t+δ2MARGIN_CALLi,t+βiControlsi,t+∑Year+∑Industry+εi,t

Fig. 1 Test procedure for mediating effects.

Fig. 1

3.3.2 The impact of margin trading and securities lending transactions on stock price crash risk

It builds the following regression models to investigate the impact of margin trading and securities lending transactions on stock price crash risk.(6) NCSKEWi,t+1=c+α2LONGi,t+βiControlsi,t+∑Year+∑Industry+εi,t

(7) NCSKEWi,t+1=c+α3SHORTi,t+βiControlsi,t+∑Year+∑Industry+εi,t

3.3.3 The moderating effect of margin trading and securities lending transactions in the impact of controlling shareholders' equity pledges on stock price crash risk

It constructs the following models to explore the moderating role of margin trading and securities lending transactions in the impact of controlling shareholders' equity pledges on stock price crash risk.(8) NCSKEWi,t+1=c+α4PLEDGEi,t+α5LONGi,t+α6PLEDGEi,t*LONGi,t+βiControlsi,t+∑Year+∑Industry+εi,t

(9) NCSKEWi,t+1=c+α7PLEDGEi,t+α8LONGi,t+α9PLEDGEi,t*LONGi,t+α10PLEDGEi,t*LONGi,t2+βiControlsi,t+∑Year+∑Industry+εi,t

(10) NCSKEWi,t+1=c+α11PLEDGEi,t+α12SHORTi,t+α13PLEDGEi,t*SHORTi,t+βiControlsi,t+∑Year+∑Industry+εi,t

4 Empirical results and analysis

4.1 Descriptive statistics

To initially identify the fundamental characteristics of the sample data, Table 1 shows the descriptive statistics of each variable. The mean value of stock price crash risk (NCSKEWt+1) is −0.293191, the minimum value is −2.676916, and the maximum value is 5.161104. It indicates that the stock price crash risk varies widely among listed companies during the sample period. The reason for this may be the long span of the sample period, which is affected by the alternating bull and bear markets or changes in macroeconomic variables. Meanwhile, the mean value of variable PLEDGEt is 0.235257, which signifies the average ratio of controlling shareholders' equity pledges is 23.5257 %. It manifests that the rate of controlling shareholders' equity pledges is high in the long run. Moreover, the mean value of LONGt is 0.958198, and SHORTt is 0.012714, which indicates there is a severe imbalance between margin trading and securities lending transactions in China. It implies that there may be a heterogeneous role of “margin trading” and “securities lending” in the influence of controlling shareholders' equity pledges on stock price crash risk.Table 1 Variable descriptive statistics.

Table 1Variable	N	Mean	SD	Min	P50	Max	
NCSKEWt+1	3830	−0.293191	0.833102	−2.676916	−0.248261	5.161104	
PLEDGEt	3830	0.235257	0.295506	0.000000	0.104700	1.000000	
MARGIN_CALLt	3830	0.012275	0.110124	0.000000	0.000000	1.000000	
LONGt	3830	0.958198	2.075118	0.000000	0.000000	16.016940	
SHORTt	3830	0.012714	0.055983	0.000000	0.000000	1.336670	
RETt	3830	0.002454	0.009761	−0.014890	0.001665	0.221547	
SIGMAt	3830	0.060965	0.030328	0.026509	0.054603	1.009403	
LEVt	3830	0.463722	0.227639	0.045385	0.463565	6.280801	
TOP1t	3830	0.337889	0.155881	0.073100	0.317300	0.847100	
TURNt	3830	32.926090	31.102930	0.334400	25.355100	225.306400	
MBt	3830	3.054262	3.136668	0.627311	2.300349	85.567300	
PEt	3830	70.422730	156.484800	−55.530600	31.867070	4375.843000	
SIZEt	3830	22.558180	1.147004	20.280690	22.456660	26.915140	
SOEt	3830	0.244386	0.429779	0.000000	0.000000	1.000000	
NCSKEWt	3830	−0.284944	0.773354	−2.481772	−0.231052	4.888443	

4.2 An empirical analysis of the impact of controlling shareholders' equity pledges on stock price crash risk

This paper performs regression analysis based on models (3) to (5), and the regression results of the impact of the controlling shareholder equity pledge level (PLEDGEt) on stock price crash risk (NCSKEWt+1) and its mechanism of action are shown in Table 2.Table 2 Empirical results of the impact of controlling shareholders' equity pledges on stock price crash risk and its mechanism of action.

Table 2Variables	NCSKEWt+1MARGIN_CALLi,tNCSKEWt+1	
(1)	(2)	(3)	
PLEDGEt	−0.102732** (−1.99)	0.025148*** (3.66)	−0.107934** (−2.08)	
MARGIN_CALLi,t			0.224481* (1.84)	
RETt	10.774580*** (5.00)	−0.341455 (−1.19)	10.852300*** (5.03)	
SIGMAt	−2.450058*** (−3.76)	0.164192* (1.90)	−2.490872*** (−3.82)	
LEVt	−0.208667*** (−2.92)	0.002871 (0.30)	−0.208769*** (−2.92)	
TOP1t	−0.036636 (−0.39)	0.003996 (0.32)	−0.037176 (−0.40)	
TURNt	−0.000686 (−1.09)	0.000011 (0.13)	−0.000688 (−1.09)	
MBt	0.022784*** (4.85)	−0.000511 (−0.82)	0.022874*** (4.87)	
PEt	−0.000139 (−1.56)	−0.000014 (−1.18)	−0.000136 (−1.53)	
SIZEt	0.013326 (0.81)	−0.004620** (−2.11)	0.014235 (0.86)	
SOEt	−0.095101*** (−2.59)	0.003001 (0.62)	−0.095703*** (−2.61)	
NCSKEWt	0.019543 (1.11)	−0.001992 (−0.85)	0.020201 (1.15)	
Constant	−0.312715 (−0.80)	0.080410 (1.55)	−0.328022 (−0.84)	
Year & Industry	Yes	Yes	Yes	
N	3830	3830	3830	
Adj.R2	0.0307	0.0220	0.0313	
F	4.68***	3.61***	4.64***	
Notes: t-values in parentheses, *, ** and *** denote significance at 10 %, 5 % and 1 % levels, respectively.

The results show that when NCSKEWt+1 is the explained variable in column (1) of Table 2, the coefficient of PLEDGEt is −0.102732 and significant at the 5 % level, which confirms Hypothesis H1. It indicates that the stock price crash risk is lower when the controlling shareholder's equity pledge ratio is higher. In column (2) of Table 2, the coefficient of PLEDGEt is 0.025148 and significant at the 1 % level, indicating that the higher the controlling shareholder's equity pledge ratio, the higher the probability of reaching the closing line and the greater the possibility of additional guarantees and collateral. In column (3) of Table 2, the coefficient of PLEDGEt is −0.107934, which is significant at the 5 % level, and the coefficient of MARGIN_CALLi,t is 0.224481, which is remarkable at the 1 % level, thus indicating that the effects of controlling shareholders' equity pledges and margin call on the risk of stock price crash are significant, i.e., margin call has a mediating effect in the impact of controlling shareholders' equity pledges on the stock price crash risk.

The reasons are: first, for the motivation of consolidating control, controlling shareholders may be more concerned about the risk of control transfer after the equity pledge. Some scholars found that controlling shareholders have a strong willingness to improve the operational performance of the company to avoid additional guarantees or collateral and prevent the risk of control transfer. The higher the controlling shareholder's equity pledge ratio, the more likely it is to reach the closeout line, where the probability of additional security or collateral and loss of control is better, so the controlling shareholder will make every effort to avoid this risk. Second, China's Security Law stipulates that the controlling shareholder's controlling position remains unchanged during the life of the equity pledge and retains its rights to participate in and vote on the company's business decisions. Therefore, after the controlling shareholder has solved the problem of capital constraint by pledging equity, it can still directly participate in the company's operation and management decisions. It will help stabilize the price of the pledged shares and create a prerequisite for avoiding stock price crash risk. Third, the controlling shareholder can also use the pledged proceeds in the daily operation of the listed company, whereby it can effectively improve the company's operational performance, which in turn reduces stock price crash risk.

4.3 An empirical analysis of the impact of margin trading and securities lending on stock price crash risk

To empirically test the relationship between margin trading and securities lending and stock price crash risk, according to models (6) to (7) to carry out the empirical analysis, Table 3 shows the regression results.Table 3 Empirical results of the impact of margin trading and securities lending on stock price crash risk.

Table 3Variables	NCSKEWt+1	
(1)	(2)	
LONGt	−0.007309 (−0.87)		
SHORTt		−0.345411 (−1.35)	
RETt	10.798200*** (5.01)	10.845590*** (5.03)	
SIGMAt	−2.430930*** (−3.72)	−2.444422*** (−3.75)	
LEVt	−0.223942*** (−3.13)	−0.226552*** (−3.17)	
TOP1t	−0.047572 (−0.50)	−0.041662 (−0.44)	
TURNt	−0.000622 (−0.98)	−0.000647 (−1.02)	
MBt	0.022791*** (4.85)	0.023371*** (4.96)	
PEt	−0.000140 (−1.57)	−0.000141 (−1.59)	
SIZEt	0.014674 (0.88)	0.017667 (1.04)	
SOEt	−0.078484** (−2.19)	−0.078527** (−2.19)	
NCSKEWt	0.020550 (1.17)	0.020131 (1.15)	
Constant	−0.342171 (−0.87)	−0.405064 (−1.01)	
Year & Industry	Yes	Yes	
N	3830	3830	
Adj.R2	0.0299	0.0302	
F	4.58***	4.61***	
Notes: t-values in parentheses, *, ** and *** denote significance at 10 %, 5 % and 1 % levels, respectively.

Columns (1) to (2) of Table 3 report the results of the effects of margin trading and securities lending on stock price crash risk, respectively. As shown in column (1), when NCSKEWt+1 is the explained variable, the coefficient of LONGt is insignificant. It does not verify hypothesis H2. And it indicates that margin trading does not significantly affect the stock price crash risk. The reasons are that, on the one hand, the selection process of the underlying stocks for margin trading and securities lending in China is more stringent, and stocks included in the pool of underlying stocks for margin trading and securities lending are generally more massive and more liquid. Hence, when the price of such stocks is much higher than their fundamental value, investors can quickly sell their stocks to close their positions and thus avoid the risk. It helps the stock price to adjust to a reasonable range on time in the long run, thereby avoiding stock price volatility. On the other hand, before the introduction of the margin trading and securities lending system, participants in the market could use financial leverage to raise funds to buy stocks when they were bullish, similar to the role of the margin trading mechanism. Therefore, margin trading is not an entirely new financial instrument, and the securities market may have already adapted to leveraged transactions similar to margin trading. So that margin trading does not significantly affect stock price crash risk.

As shown in column (2) of Table 3, the regression coefficient of SHORTt is insignificant, and it does not verify hypothesis H3, thus indicating that the effect of securities lending transactions on stock price crash risk is inconspicuous. The reason is that China's margin trading and securities lending system is more strictly regulated. Under the influence of the ex-ante deterrent and ex-post-punishment effects of securities lending transactions, shareholders and management of the company will forcefully or actively assess the stock price crash risk which is due to the precipitation and spread of negative information, so they consciously restrain short-sighted behavior in management. Meanwhile, the company management may also focus on improving the transparency of information so that it can reflect negative news in the stock price promptly, which will prevent the accumulation of negative messages and effectually avoid its sudden emergence and impact on the stock price. Furthermore, since the implementation of China's margin trading and securities lending system, margin trading has dominated the margin trading and securities lending balance, the scale of securities lending transactions is relatively small, so its impact on stock prices is also minor and will not have a significant effect on the stock price crash risk.

4.4 The moderating effect of margin trading and securities lending transactions in the impact of controlling shareholders' equity pledges on stock price crash risk

It empirically tests whether margin trading and securities lending transactions have a moderating effect on the impact of controlling shareholders' equity pledges on stock price crash risk depending on models (8) to (10), and Table 4 shows the results.Table 4 Empirical results on the moderating effect of margin trading and securities lending transactions.

Table 4Variables	NCSKEWt+1	
(1)	(2)	(3)	
PLEDGEt	−0.136219** (−2.42)	−0.134491** (−2.34)	−0.080254 (−1.51)	
LONGt	−0.015480 (−1.54)	−0.016121 (−1.49)		
SHORTt			−0.060786 (0.17)	
PLEDGEt*LONGt	0.064058 (1.47)	0.056496 (0.88)		
PLEDGEt*LONGi,t2		0.001610 (0.16)		
PLEDGEt*SHORTt			−2.338416* (−1.69)	
RETt	10.852060*** (5.03)	10.855680*** (5.03)	10.706570*** (4.97)	
SIGMAt	−2.433681*** (−3.73)	−2.435137*** (−3.73)	−2.420253*** (−3.71)	
LEVt	−0.212145*** (−2.96)	−0.212949*** (−2.96)	−0.217069*** (−3.03)	
TOP1t	−0.046737 (−0.49)	−0.047183 (−0.50)	−0.042557 (−0.45)	
TURNt	−0.000762 (−1.19)	−0.000750 (−1.16)	−0.000633 (−1.00)	
MBt	0.022662*** (4.82)	0.022683*** (4.83)	0.023074*** (4.89)	
PEt	−0.000135 (−1.52)	−0.000135 (−1.52)	−0.000138 (−1.55)	
SIZEt	0.013147 (0.78)	0.013593 (0.80)	0.019249 (1.14)	
SOEt	−0.093914** (−2.56)	−0.094035** (−2.56)	−0.095710*** (−2.61)	
NCSKEWt	0.019455 (1.11)	0.019406 (1.11)	0.019285 (1.10)	
Constant	−0.303440 (−0.77)	−0.313040 (−0.78)	−0.440360 (−1.10)	
Year & Industry	Yes	Yes	Yes	
N	3830	3830	3830	
Adj.R2	0.0310	0.0307	0.0314	
F	4.50***	4.37***	4.55***	
Notes: t-values in parentheses, *, ** and *** denote significance at 10 %, 5 % and 1 % levels, respectively.

According to column (1) of Table 4, PLEDGEt is negative and significant. However, the coefficient of the interaction term PLEDGEt*LONGt is positive and insignificant, indicating that the moderating effect of margin trading transactions is not remarkable in the impact of equity pledging on stock price crash risk. It does not verify hypothesis H4. The results in column (2) show that the coefficient of the interaction term PLEDGEt*LONGi,t2 is insignificant, and it does not verify hypothesis H5. The reason is that, unlike the underlying stocks used for shorting mechanisms in foreign countries, the overall liquidity of the underlying stocks of margin trading and securities lending in China is higher and more massive. The stock price crash risk of these stocks is inherently lower, and regulators have strict regulations on indicators such as the minimum maintenance guarantee ratio and the scope of collateral for the underlying stocks for margin trading and securities lending. Therefore, even if the scale of margin trading transactions and market conditions change, the share price may quickly adjust to within a reasonable range, thus avoiding extreme stock price fluctuations to a certain extent. For companies with good operating performance, the leverage effect generated by margin trading makes the stock price rise but not be overvalued. The negative impact of equity pledges will, to a certain extent, inhibit the upside of the stock price. In the market downturn, the status quo of strict regulation of the two financing transactions, high stock liquidity, and large scale will also inhibit the excessive fall of the stock price. While the buying leverage mechanism of margin trading transactions also has a dampening effect on massive selling. In summary, given the specific mechanism of margin trading and securities lending transactions in China's A-share market, the moderating effect of margin trading transactions in the impact of controlling shareholders' equity pledges on the stock price crash risk may not be significant.

As shown in column (3) of Table 4, the coefficient of PLEDGEt is negative but insignificant. Meanwhile, the coefficient of the interaction term PLEDGEt*SHORTt is −2.338416 and significant at the 10 % level, thus indicating that the securities lending mechanism has a positive moderating effect in the process of the impact of controlling shareholders' equity pledges on stock price crash risk, which confirms Hypothesis H6. The reason is that introducing the securities lending mechanism provides opportunities for informed traders to transmit negative information to the stock market. While under the deterrent pressure of securities lending, shareholders and management of listed companies will actively or passively improve the effectiveness of information disclosure, thus enhancing the efficiency of corporate governance. Simultaneously, to prevent the risk of a control transfer, the controlling shareholder's equity pledging behavior has definite governance effects. Therefore, under the scenario of controlling shareholder's equity pledge, along with the increase in the scale of securities lending sales, it is faster to reflect all kinds of news about the listed company into the stock price. The overlapping governance effect of securities lending and controlling shareholders' equity pledges may be more apparent at this time. It can also restrain the potential short-sighted behavior, which will help to improve the company's business performance, thus further reducing the stock price crash risk.

5 Robustness and endogeneity tests

(1) Robustness test

The securities market may react to the launch of the margin trading and securities lending system in advance. Moreover, it may induce overreaction due to factors like information asymmetry when it materializes the margin trading and securities lending system. Drawing on Li & Lu [36], this paper excludes the sample of the year in which it conducts the first margin trading and securities lending transactions, the results as shown in Table 5. The regression results indicate that the findings remain robust after excluding the observations of the year in which it conducts the first margin trading and securities lending. It demonstrates that the results of controlling shareholders' equity pledges having a dampening effect on stock price crash risk and securities lending having a positive moderating effect on the relationship between equity pledges and crash risk are robust, independent of the possible pre-reaction and over-reaction of the securities market triggered by margin trading and securities lending transactions. In summary, the above empirical results that exclude the sample in the year of first-time margin trading and securities lending transactions remain robust. Furthermore, this paper further controls for critical variables of corporate governance such as the number of board of directors (BODSIZE) and the proportion of sole directors (INDR), as shown in Table 6, and the regression results also indicate that the hypothesis testing models constructed in this paper are all robust.(2) Endogeneity test

Table 5 Robustness test results excluding the sample in the year of first margin trading and securities lending transactions.

Table 5Variables	NCSKEWt+1	
(1)	(2)	(3)	(4)	(5)	(6)		
PLEDGEt	−0.095838* (−1.78)			−0.129580** (−2.21)	−0.126564** (−2.11)	−0.072553 (−1.31)		
LONGt		−0.005273 (−0.61)		−0.013182 (−1.29)	−0.014235 (−1.29)			
SHORTt			−0.324264 (−1.24)			0.083315 (0.23)		
PLEDGEt*LONGt				0.062336 (1.40)	0.049809 (0.76)			
PLEDGEt*LONGi,t2					0.002647 (0.26)			
PLEDGEt*SHORTt						−2.348395* (−1.67)		
RETt	13.482170*** (5.06)	13.548400*** (5.08)	13.611500*** (5.11)	13.585760*** (5.09)	13.592060*** (5.09)	13.365150*** (5.02)		
SIGMAt	−4.676892*** (−4.38)	−4.665942*** (−4.35)	−4.675635*** (−4.38)	−4.654974*** (−4.34)	−4.657353*** (−4.34)	−4.602243*** (−4.31)		
LEVt	−0.193714** (−2.46)	−0.209390*** (−2.66)	−0.213351*** (−2.71)	−0.196314** (−2.48)	−0.197930** (−2.49)	−0.203772** (−2.58)		
TOP1t	−0.010866 (−0.11)	−0.019791 (−0.19)	−0.015901 (−0.16)	−0.019305 (−0.19)	−0.020054 (−0.20)	−0.017013 (−0.17)		
TURNt	−0.000086 (−0.13)	−0.000032 (−0.05)	−0.000044 (−0.07)	−0.000187 (−0.27)	−0.000163 (−0.23)	−0.000032 (−0.05)		
MBt	0.022058*** (4.54)	0.022092*** (4.55)	0.022646*** (4.65)	0.021937*** (4.52)	0.021974*** (4.52)	0.022343*** (4.59)		
PEt	−0.000091 (−0.99)	−0.000093 (−1.01)	−0.000093 (−1.02)	−0.000089 (−0.97)	−0.000089 (−0.97)	−0.000090 (−0.98)		
SIZEt	0.011848 (0.66)	0.013039 (0.72)	0.016634 (0.91)	0.011023 (0.61)	0.011853 (0.64)	0.018233 (0.99)		
SOEt	−0.082084** (−2.07)	−0.064965* (−1.68)	−0.064673* (−1.67)	−0.081182** (−2.04)	−0.081377** (−2.05)	−0.082596** (−2.08)		
NCSKEWt	0.018935 (1.03)	0.019819 (1.08)	0.019416 (1.06)	0.018747 (1.02)	0.018669 (1.02)	0.018668 (1.02)		
Constant	−0.274241 (−0.64)	−0.300600 (−0.69)	−0.375282 (−0.85)	−0.249085 (−0.57)	−0.266875 (−0.60)	−0.414479 (−0.94)		
Year & Industry	Yes	Yes	Yes	Yes	Yes	Yes		
N	3447	3447	3447	3447	3447	3447		
Adj.R2	0.0300	0.0292	0.0295	0.0301	0.0298	0.0306		
F	4.33***	4.23***	4.27***	4.14***	4.02***	4.20***		
Notes: t-values in parentheses, *, ** and *** denote significance at 10 %, 5 % and 1 % levels, respectively.

Table 6 Results of robustness tests controlling for corporate governance factors.

Table 6Variables	NCSKEWt+1	
(1)	(2)	(3)	(4)	(5)	(6)		
PLEDGEt	−0.103026** (−1.99)			−0.137575** (−2.44)	−0.136429** (−2.37)	−0.080757 (−1.51)		
LONGt		−0.006811 (−0.81)		−0.015238 (−1.52)	−0.015661 (−1.45)			
SHORTt			−0.323680 (−1.26)			0.079128 (0.23)		
PLEDGEt*LONGt				0.066018 (1.51)	0.061018 (0.95)			
PLEDGEt*LONGi,t2					0.001064 (0.11)			
PLEDGEt*SHORTt						−2.317848* (−1.67)		
RETt	10.793020*** (5.00)	10.824720*** (5.02)	10.870590*** (5.04)	10.873280*** (5.04)	10.875690*** (5.04)	10.724380*** (4.97)		
SIGMAt	−2.447674*** (−3.76)	−2.430996*** (−3.72)	−2.443518*** (−3.75)	−2.434091*** (−3.73)	−2.435053*** (−3.73)	−2.419341*** (−3.71)		
LEVt	−0.208793*** (−2.92)	−0.223829*** (−3.13)	−0.226296*** (−3.17)	−0.211974*** (−2.96)	−0.212506*** (−2.96)	−0.216750*** (−3.03)		
TOP1t	−0.029092 (−0.31)	−0.038746 (−0.41)	−0.033182 (−0.35)	−0.038715 (−0.41)	−0.039015 (−0.41)	−0.034938 (−0.37)		
BODSIZEt	−0.001510 (−0.16)	−0.000652 (−0.07)	−0.000374 (−0.04)	−0.001824 (−0.19)	−0.001814 (−0.19)	−0.001381 (−0.14)		
INDRt	−0.482631* (−1.79)	−0.466504* (−1.73)	−0.455490* (−1.69)	−0.488164* (−1.81)	−0.487344* (−1.80)	−0.464121* (−1.72)		
TURNt	−0.000715 (−1.13)	−0.000655 (−1.03)	−0.000677 (−1.07)	−0.000798 (−1.25)	−0.000790 (−1.22)	−0.000663 (−1.05)		
MBt	0.022986*** (4.89)	0.022990*** (4.89)	0.023528*** (4.99)	0.022869*** (4.87)	0.022882*** (4.87)	0.023238*** (4.93)		
PEt	−0.000126 (−1.42)	−0.000128 (−1.44)	−0.000130 (−1.46)	−0.000123 (−1.38)	−0.000123 (−1.38)	−0.000126 (−1.42)		
SIZEt	0.014280 (0.84)	0.015138 (0.88)	0.017837 (1.03)	0.014018 (0.82)	0.014308 (0.82)	0.019809 (1.14)		
SOEt	−0.096859*** (−2.63)	−0.080575** (−2.23)	−0.080687** (−2.24)	−0.095604** (−2.59)	−0.095684** (−2.59)	−0.097476*** (−2.64)		
NCSKEWt	0.018215 (1.04)	0.019214 (1.09)	0.018838 (1.07)	0.018112 (1.03)	0.018082 (1.03)	0.018021 (1.03)		
Constant	−0.139702 (−0.34)	−0.173666 (−0.42)	−0.237337 (−0.57)	−0.123112 (−0.30)	−0.129772 (−0.31)	−0.267141 (−0.65)		
Year & Industry	Yes	Yes	Yes	Yes	Yes	Yes		
N	3830	3830	3830	3830	3830	3830		
Adj.R2	0.0312	0.0303	0.0306	0.0314	0.0312	0.0318		
F	4.52***	4.42***	4.45***	4.36***	4.24***	4.39***		
Notes: t-values in parentheses, *, ** and *** denote significance at 10 %, 5 % and 1 % levels, respectively.

This paper may have the problem of omitted variables, and it adopts the instrumental variable method for the endogeneity test drawing on the study of Chan et al. [28]. In May 2013, China released the Measures on Stock Pledge Repurchase Trading and Registration and Settlement Business (for Trial Implementation), which determines from the legal level that securities firms can participate in equity pledge transactions. Referring to the existing studies, let the participation of securities firms in equity pledging (TRADING) as an instrumental variable, with TRADING taking the value of 1 after 2013, and 0 otherwise. For its correlation, the participation of securities firms in equity pledge transactions increases the likelihood of controlling shareholders' equity pledge transactions, i.e., they have a positive correlation. For its exogenous, the policy reform is implemented by the government, and listed companies cannot choose on their own, so it is an exogenous shock to listed companies.

Table 7 shows the results of the two-stage least squares (2SLS) regression. The first-stage regression results indicate that the participation of securities firms in equity pledge transactions is significantly positively associated with controlling shareholders' equity pledges, and the second-stage regression results illustrate that controlling shareholders' equity pledges is significantly and negatively associated with the stock price crash risk, i.e., the test of endogeneity is significant when using the instrumental variable method. Moreover, endogeneity tests were also conducted in this paper using fixed effects models (Table 8). It omits due to space limitations.Table 7 Endogeneity test results based on the instrumental variable method.

Table 7Variables	(1)	(2)	
FIRSTSTAGEPLEDGEt	SECONDSTAGE
NCSKEWt+1	
TRADINGt	0.163565*** (7.15)		
PLEDGEt		−0.369203** (−2.46)	
RETt	−0.071210 (−0.15)	8.954780*** (8.78)	
SIGMAt	−0.125877* (−1.79)	−1.170683*** (−3.21)	
LEVt	0.085868* (1.88)	−0.190999** (−2.29)	
TOP1t	0.030824 (0.88)	−0.050290 (−0.61)	
TURNt	0.001088*** (6.38)	−0.001167** (−2.46)	
MBt	−0.002788*** (−2.59)	0.020799*** (5.30)	
PEt	0.000029 (1.06)	−0.000152* (−1.71)	
SIZEt	0.009870 (0.73)	0.012355 (0.58)	
SOEt	−0.089636*** (−4.34)	−0.108216*** (−2.94)	
NCSKEWt	−0.001058 (−0.23)	0.017345 (1.54)	
Constant	−0.220821 (−0.73)	−0.388463 (−0.83)	
Industry	Yes	Yes	
N	3830	3830	
Adj.R2	0.1110		
Wald chi2		372768.16***	
Notes: Since the instrumental variable of this paper, government participation in equity pledge transactions, is a variable that exists only in the time dimension, Industry fixed effects are included, drawing on the studies of Chan et al. [28], among others. The t-values are in parentheses in the first stage and the z-values are in parentheses in the second stage, and *, **, and *** denote significance at 10 %, 5 %, and 1 % levels, respectively.

Table 8 Endogeneity test results based on a two-way fixed effects model.

Table 8Variables	NCSKEWt+1	
(1)	(2)	(3)	(4)	(5)	(6)		
PLEDGEt	−0.133655** (−2.03)			−0.158196** (−2.29)	−0.163818** (−2.33)	−0.112326* (−1.69)		
LONGt		0.003508 (0.35)		−0.003915 (−0.35)	−0.001604 (−0.13)			
SHORTt			−0.422070 (−1.57)			0.023227 (0.06)		
PLEDGEt*LONGt				0.060246 (1.23)	0.082644 (1.13)			
PLEDGEt*LONGi,t2					−0.004575 (−0.41)			
PLEDGEt*SHORTt						−2.609126* (−1.75)		
RETt	8.255171*** (3.73)	8.311027*** (3.75)	8.304425*** (3.75)	8.353519*** (3.77)	8.347880*** (3.76)	8.181992*** (3.69)		
SIGMAt	−0.958591 (−1.38)	−0.948544 (−1.36)	−0.902461 (−1.29)	−0.965295 (−1.38)	−0.967146 (−1.39)	−0.919735 (−1.32)		
LEVt	−0.156357 (−1.51)	−0.165232 (−1.60)	−0.167021 (−1.62)	−0.156467 (−1.51)	−0.156117 (−1.51)	−0.153150 (−1.48)		
TOP1t	0.259416 (0.97)	0.227273 (0.85)	0.201231 (0.76)	0.286258 (1.07)	0.293862 (1.09)	0.240073 (0.90)		
TURNt	0.000543 (0.73)	0.000563 (0.76)	0.000585 (0.79)	0.000386 (0.51)	0.000349 (0.46)	0.000596 (0.80)		
MBt	0.023498*** (3.97)	0.023692*** (3.99)	0.023801*** (4.01)	0.023909*** (4.02)	0.023983*** (4.03)	0.023159*** (3.90)		
PEt	0.000013 (0.14)	0.000009 (0.10)	0.000012 (0.13)	0.000015 (0.15)	0.000014 (0.15)	0.000013 (0.14)		
SIZEt	0.095946** (2.25)	0.092362** (2.17)	0.099768** (2.33)	0.094159** (2.21)	0.092827** (2.17)	0.100379** (2.34)		
SOEt	−0.012449 (−0.17)	−0.001595 (−0.02)	0.001576 (0.02)	−0.021915 (−0.30)	−0.019275 (−0.27)	−0.012620 (−0.18)		
NCSKEWt	−0.098536*** (−5.38)	−0.098217*** (−5.36)	−0.098775*** (−5.39)	−0.098694*** (−5.38)	−0.098584*** (−5.38)	−0.099219*** (−5.42)		
Constant	−2.403656** (−2.55)	−2.322449** (−2.47)	−2.480688*** (−2.62)	−2.365181** (−2.51)	−2.337916** (−2.48)	−2.500276*** (−2.64)		
Year	Yes	Yes	Yes	Yes	Yes	Yes		
N	3830	3830	3830	3830	3830	3830		
Adj.R2	0.0325	0.0314	0.0320	0.0329	0.0330	0.0340		
F	5.76***	5.55***	5.67***	5.30***	5.08***	5.49***		
Notes: t-values in parentheses, *, ** and *** denote significance at 10 %, 5 % and 1 % levels, respectively.

6 Research conclusions

The impact of controlling shareholders' equity pledges on the stock price crash risk is studied based on the perspective of the regulation effect of margin trading and securities lending. First, the mechanism of influence between controlling shareholders' equity pledges, margin trading and securities lending, and stock price crash risk is clarified. Next, it establishes a multivariate panel regression model based on constructing the measures method of stock price crash risk, controlling shareholders' equity pledge level, margin trading and securities lending size. It empirically investigates the moderating effect of margin trading and securities lending transaction mechanism in the impact of controlling shareholders' equity pledges on stock price crash risk using China's A-share market 2010–2020 as the sample interval. It finds that the higher the controlling shareholders' equity pledge ratio in China's listed companies, the higher the probability that stock price volatility will lead them to trigger the closeout line, so the more motivation controlling shareholders have to improve the company's performance after equity pledge, the lower the stock price crash risk. Further empirical study finds that the effects of stock margin trading and securities lending on the stock price crash risk are insignificant, probably because the selection process of underlying stocks for margin trading and securities lending in China's securities market is more stringent, and the shares included in the underlying pool are more liquid and less volatile in terms of stock price. Securities lending has a positive moderating effect on the impact of controlling shareholder's equity pledges on stock price crash risk, but the moderating effect of margin trading is not significant, which may be since the securities lending mechanism provides an opportunity for informed traders to transmit negative information to the securities market, thus making the effect of such mechanism on stock price volatility more significant.

In conclusion, this paper has enhanced policy significance at the listed company and national level. First, it explores the effect of equity pledges and margin trading and securities lending, which helps listed companies to update their transaction concepts, pay attention to the impact of equity pledges and margin trading and securities lending system on the stock market, and provide a forceful reference for their investment decisions. Second, China launched the margin trading and securities lending system late, and the relevant systems laws and regulations have not yet been perfected, so this study provides definite policy references and theoretical support for the regulatory authorities in improving the margin trading and securities lending system, reforming the relevant regulatory system, and formulating the pertinent laws and regulations.

However, although this paper considers the moderating role of margin trading and securities lending in the study of controlling shareholders' equity pledges on stock price crash risk, it does not consider the issue of controlling shareholders' equity pledge motives and the heterogeneous effects of both motivations of appropriation and financing in the equity pledge process on stock price crash risk is also not clarified, which will be an issue for further discussion. Moreover, this paper only takes China's A-share market as the research sample and does not consider the controlling shareholders' equity pledges in developed countries' securities markets. Therefore, it will be a further research direction to study the controlling shareholders' equity pledges in industrialized and developing countries' securities markets in conjunction with their behavior.

Data availability statement

The original data of the study can be obtained from the corresponding author of this paper, Dr Liang Wang (E-mail: wangliang@xaut.edu.cn), upon reasonable request.

Funding statement

This work was supported by the [2023 Natural Science Basic Research Project of Shaanxi Province] under Grant [No.2023-JC-YB-618] [10.13039/501100012456 National Social Science Foundation of China ], under Grant [No. 20XGL003], [Social Science Fund Project in Shaanxi Province] under Grant [No. 2023R045].

CRediT authorship contribution statement

Liang Wang: Project administration, Funding acquisition, Conceptualization. Ziqiu Cao: Writing – original draft, Resources, Methodology, Data curation. Wenyan Cao: Writing – review & editing, Visualization, Validation.

Declaration of competing interest

The authors declare that they have no known competing financial interests or personal relationships that could have appeared to influence the work reported in this paper.

Liang Wang* (1974-), Ph. D, wangliang@xaut.edu.cn. He is a professor of School of Economics and Management at Xi'an University of Technology in China, his research is focused on financial engineering. Ziqiu Cao (1998-), doctor degree candidates of School of Economics and Management at Xi'an University of Technology in China. Wenyan Cao (1999-), master degree candidates of School of Economics and Management at Xi'an University of Technology in China.
==== Refs
References

1 Zhou J.T. Li W.L. Yan Z.Q. Lyu H.L. Controlling shareholder share pledging and stock price crash risk: evidence from China Int. Rev. Financ. Anal. 77 2021 1 17 10.1016/j.irfa.2021.101839
2 Chauhan Y. Mishra A.K. Spahr R.W. Stock pledging and firm risk: evidence from India Financ. Manag. 50 1 2021 261 280 10.1111/fima.12326
3 Li M. Liu C. Scott T. Share pledges and firm value Pac. Basin Finance J. 55 2019 192 205 10.1016/j.pacfin.2019.04.001
4 Chang J.J. Meng Q. Ni X. A tale of riskiness: the real effects of share pledging on the Chinese stock market Pac. Basin Finance J. 73 2022 1 23 10.1016/j.pacfin.2022.101754
5 Deng X.H. Gao L. The monitoring of short selling: evidence from China Res. Int. Bus. Finance 43 2018 68 78 10.1016/j.ribaf.2017.07.087
6 Li C.Q. Xing W. The controlling shareholders share pledges and the information disclosure of listed companies Statistical Research 34 12 2017 75 86 10.19343/j.cnki.11-1302/c.2017.12.007
7 Shao J.B. Fei B.X. Controlling shareholder's equity pledge and stock price crash risk: from the perspective of company control right transfer Commercial Research 12 2020 110 123 10.13902/j.cnki.syyj.2020.12.011
8 Stepanov S. Suvorov A. Agency problem and ownership structure: outside block holder as a signal J. Econ. Behav. Organ. 133 10 2017 87 107 10.1016/j.jebo.2016.10.024
9 Hu J. Long W.B. Luo L. Peng Y.H. Share pledging and optimism in analyst earnings forecasts: evidence from China J. Bank. Finance 132 2021 1 17 10.1016/j.jbankfin.2021.106245
10 Wang Y.C. Chou R.K. The impact of share pledging regulations on stock trading and firm valuation J. Bank. Finance 89 8 2018 1 13 10.1016/j.jbankfin.2018.01.016
11 Xie D.R. Zheng D.J. Cui C.Y. Is controlling shareholders' equity pledge a potential "landmine"? -A study based on the perspective of stock price crash risk Manag. World 5 2016 128 140+188 10.19744/j.cnki.11-1235/f.2016.05.011
12 Scheinkman J.A. Bolton P. Xiong W. Executive compensation and short-termist behaviour in speculative markets Rev. Econ. Stud. 73 3 2006 577 610 10.1111/j.1467-937X.2006.00388.x
13 Stein J.C. Presidential address: sophisticated investors and market efficiency J. Finance 64 2009 1517 1548 10.1111/j.1540-6261.2009.01472.x
14 Ma X.X. Tang T.J. Zheng G.J. Governance of non-state shareholders and financial stability of state-owned capital: an analysis on stock price crash risk J. Finance Econ. 47 3 2021 35 49 10.16538/j.cnki.jfe.20200117.101
15 Kahraman B. Tookes H.E. Trader leverage and liquidity J. Finance 72 4 2017 1567 1609 10.1111/jofi.12507
16 Zhong K. Li X.Y. Wang H.C. The asymmetry between margin trading and short selling and its relationship with stock price crash: evidence from the perspectives of risk hedging Manag. Rev. 34 5 2022 13 24 10.14120/j.cnki.cn11-5057/f.2022.05.006
17 Hutton A.P. Marcus A.J. Tehranian H. Opaque financial report, R2, and crash risk J. Financ. Econ. 94 1 2009 67 86 10.1016/j.jfineco.2008.10.003
18 Chen J. Kadapakkam P.R. Yang T. Short selling, margin trading, and the incorporation of new information into prices Int. Rev. Financ. Anal. 44 2016 1 17 10.1016/j.irfa.2016.01.002
19 Li Y. Zhang L. Short selling pressure, stock price behavior, and management forecast precision: evidence from a natural experiment J. Account. Res. 53 1 2015 79 117 10.1111/1475-679X.12068
20 Chowdhry B. Nanda V. Leverage and market stability: the role of margin rules and price limits J. Bus. 71 2 1998 179 210 https://www.jstor.org/stable/10.1086/209742
21 Franco L.N. Diaz C.R. How financing and information drive international corporate entrepreneurs' innovations J. Int. Enterpren. 20 2 2022 316 343
22 Du Y. Deng X. Margin trading, short selling and firm financialization: based on a quasi-natural experiment of batch expansion Finance & Trade Economics 41 2 2020 69 83 10.3969/j.issn.1002-8102.2020.02.005
23 Zhang P. Cui S.L. Li J.X. Consistent mean-CVaR plausible portfolio optimization Chinese Journal of Management Science 31 6 2023 111 121 10.16381/j.cnki.issn1003-207x.2022.0654
24 Charoenrook A. Daouk H. A Study of Market-wide Short-Selling Restrictions 2009 Cornell University, Department of Applied Economics and Management New York 10.22004/ag.econ.51180
25 Hong H. Kubik J.D. Fishman T. Do arbitrageurs amplify economic shocks? J. Financ. Econ. 103 3 2012 454 470 10.1016/j.jfineco.2011.10.007
26 Kuttu S. Time-varying conditional discrete jumps in emerging African equity markets Global Finance J. 32 2017 35 54 10.1016/j.gfj.2016.06.004
27 Liu W. Tian G.G. Controlling shareholder share pledging and the cost of equity capital: evidence from China Br. Account. Rev. 54 6 2022 101057 10.1016/j.bar.2021.101057
28 Chan K. Chen H.K. Hu S. Share pledges and margin call pressure J. Corp. Finance 52 2018 96 117 10.1016/j.jcorpfin.2018.08.003
29 Saffi P.A.C. Sigurdsson K. Price efficiency and short selling Rev. Financ. Stud. 24 3 2011 821 852 10.1093/rfs/hhq124
30 La Porta R. Lopez-de-Silanes F. Shleifer A. Investor protection and corporate valuation J. Finance 57 3 2002 1147 1170 10.1111/1540-6261.00457
31 Kim J.B. Li Y. Zhang L. CFOs versus CEOs: equity incentives and crashes J. Financ. Econ. 101 3 2011 713 730 10.1016/j.jfineco.2011.03.013
32 Anderson R. Puleo M. Insider share-pledging and equity risk J. Financ. Serv. Res. 58 6 2020 1 25 10.1007/s10693-020-00332-x
33 Houmes R. Chira I. The effect of ownership structure on the price earnings ratio—returns anomaly Int. Rev. Financ. Anal. 37 2015 140 147 10.1016/j.irfa.2014.11.017
34 Xu N. Li X. Yuan Q. Excess perks and stock price crash risk: evidence from China J. Corp. Finance 25 2014 419 434 10.1016/j.jcorpfin.2014.01.006
35 Baron R.M. Kenny D.A. The moderator-mediator variable distinction in social psychological research: conceptual strategic and statistical considerations J. Pers. Soc. Psychol. 51 6 1986 1173 1182 https://psycnet.apa.org/doi/10.1037/0022-3514.51.6.1173 3806354
36 Li W.G. Lu J. Online platform interaction and stock price crash risk: "Easy Communication" or "Easy Manipulation" China Industrial Economics 7 2022 178 196 10.19581/j.cnki.ciejournal.2022.07.017
