Share Pledging in China: Funding Listed Firms or Funding Entrepreneurship?

This paper connects share pledging with entrepreneurial activities in the context of China. Survey evidence shows that 33.0% of listed firms’ largest shareholders invested pledging funds in creating new firms. By linking firm registration data with pledging data, we show a positive relation between pledging transactions and entrepreneurial activities. Utilizing the 2013 exchange market launch as a quasi-natural experiment that favors pledging by private shareholders over state-owned shareholders, our difference-indifferences analysis shows the relation is likely causal. We also demonstrate that shareholders invest in industries encouraged by the government and follow a momentum-like strategy by investing in past winners.