Unpacking the black box: Board co-option and equity pledging by controlling shareholders

Abstract

This study examines the impact of board co-option on controlling shareholders’ equity pledging using data from Chinese A-share listed firms (2003–2023). Results show that board co-option significantly reduces equity pledging, with male directors having a stronger inhibitory effect. Mechanism tests confirm that this effect operates through reduced financing constraints, while heterogeneity analyses reveal stronger impacts in non-state firms, high-investment firms, and large-scale firms. These findings contribute to corporate governance literature and offer regulatory insights for mitigating equity pledging risks in emerging markets.