The Information Content of Insider Pledging

[[abstract]]This paper examines the information content of insider pledging. Given many proxy advisors and public media have offered a caution on insider pledging and even suggested to prohibit such practice, we provide the opposite evidence using the US data. First, we find that firms that disclose insider pledging have significantly positive announcement return and one-year abnormal stock returns after the disclosure. Our results still hold when we control for many asset pricing factors and firm-specific risk. Second, the average market reactions to involuntary sale of pledged shares are not significant, meaning that the forced sale of pledged shares does not create a downside risk on stock returns. In short, our results suggest that the practices of insider pledging is not harmful to shareholder values in US.[[notice]]補正完