Abstract
Equity pledging, the practice of pledge shares in exchange for liquidity from lenders, has become a popular approach to financing, especially in Chinese capital market. However, although there are many attractive benefits, share pledging also brings uncertainty and risks to the companies and the market. This study examines the effect of controlling shareholder’s equity pledging activities on corporate financial risk using a sample of public A-share listed companies in China. After processing the sample and eliminating some observations, a multiple regression model is used to examine the relationship of the share pledging, and ownership structure to the corporate financial risk. It is found that the effect of controlling shareholders' equity pledging can increase a company’s financial risk, but this effect is subject to the balanced level of the ownership structure of major shareholders, as more shares are held by other major shareholders, the negative impact that controlling shareholders’ share pledging on financial risks can be decreased.