The Dark Side of Controlling Shareholders Equity Pledges for Corporate Green Innovation
DOI:
https://doi.org/10.59976/jebin.v3i1.289Abstract
Green innovation is fundamental to sustainable development but frequently encounters financial and governance constraints in newly industrialized and export-oriented economies. Controlling shareholders' behaviors, particularly equity pledges, may erode firms' long-term innovation incentives. This study investigates how controlling shareholders' equity pledges influence corporate green innovation in Taiwan and explores the underlying mechanisms and contextual variations of this relationship. The research focuses on Taiwan Stock Exchange (TWSE) and Taipei Exchange (TPEx) listed companies over the period from 2013 to 2023, offering insights from a high-technology economy in which green transformation ambitions coexist with concentrated family ownership structures and active equity pledging practices. Using panel data regression analysis and mediation models, this study examines the direct impact of equity pledges on green innovation and further analyzes three mediating channels: Environmental, Social and Governance (ESG) performance, financing constraints, and tunneling behavior. The results show that controlling shareholders' equity pledges significantly reduce firms' green innovation efforts, primarily by lowering research and development (R&D) investment. The adverse effects operate through worsened ESG performance, tighter financing constraints, and increased tunneling activities. However, the inhibitory effect is mitigated in firms with low pledge ratios, high pollution levels, or government-linked ownership structures. Equity pledging by controlling shareholders poses a substantial threat to green innovation in most Taiwanese firms, although certain firm characteristics can buffer this effect. This article contributes to the literature by uncovering the dark side of shareholder pledging behavior in the context of environmental innovation within a high-technology export economy, highlighting the need for regulatory scrutiny and corporate governance reforms to safeguard long-term sustainable development.
References
(FSC), F. S. C. (2022). Green Finance Action Plan 3.0. FSC.
Agustina, R., Rachmi, C. N., & Bella, A. (2022). Food price volatility, supply chain disruptions, and nutrition outcomes during COVID-19 in Indonesia. Food Policy, 108, 102241. https://doi.org/10.1016/j.foodpol.2022.102241
Alinovi, L., Mane, E., & Romano, D. (2020). Measuring household resilience to food insecurity: Application to Palestinian households. In Agricultural Survey Methods. Wiley.
Barrett, C. B., & Carter, M. R. (2013). The economics of poverty traps and persistent poverty: Empirical and policy implications. Journal of Development Studies, 49(7), 976–990. https://doi.org/10.1080/00220388.2013.785519
Behera, P., Behera, B., & Sethi, N. (2024). Assessing the impact of fiscal decentralization, green finance and green technology innovation on renewable energy use in European Union countries: What is the moderating role of political risk? Renewable Energy, 229, 120715.
Bene, C., Headey, D., Haddad, L., & von Grebmer, K. (2016). Is resilience a useful concept in the context of food security and nutrition programmes? Food Security, 8(1), 123–138. https://doi.org/10.1007/s12571-015-0526-x
Benfratello, L., Schiantarelli, F., & Sembenelli, A. (2008). Banks and innovation: Microeconometric evidence on Italian firms. Journal of Financial Economics, 90, 197–217.
Bhatia, S., Choudhary, S., Dugar, A., & Mazumdar, S. (2019). Stock pledging and earnings management: An empirical analysis. Asian Review of Accounting, 27, 350–372.
Brambor, T., Clark, W. R., & Golder, M. (2006). Understanding interaction models: Improving empirical analyses. Political Analysis, 14(1), 63–82.
Brunnermeier, S. B., & Cohen, M. A. (2003). Determinants of environmental innovation in US manufacturing industries. Journal of Environmental Economics and Management, 45, 278–293.
Cameron, A. C., & Miller, D. L. (2015). A practitioner’s guide to cluster-robust inference. Journal of Human Resources, 50(2), 317–372.
Ceballos, F., Hernandez, M. A., Minot, N., & Robles, M. (2020). Grain price and volatility transmission from international to domestic markets in developing countries. World Development, 94, 305–320. https://doi.org/10.1016/j.worlddev.2020.01.014
Chan, K., Chen, H. K., Hu, S. Y., & Liu, Y. J. (2018). Share pledges and margin call pressure. Journal of Corporate Finance, 52, 96–117.
Chen, H. K., & Hu, S. Y. (2024). Insider pledging: Its information content and forced sale. Journal of Corporate Finance, 89, 102655.
Chi, Y., Hu, N., Lu, D., & Yang, Y. (2023). Green investment funds and corporate green innovation: From the logic of social value. Energy Economics, 119, 106532.
Czarnitzki, D., & Hottenrott, H. (2009). R&D investment and financing constraints of small and medium-sized firms. Small Business Economics, 36, 65–83.
de Janvry, A., Fafchamps, M., & Sadoulet, E. (1991). Peasant household behaviour with missing markets. The Economic Journal, 101(409), 1400–1417. https://doi.org/10.2307/2234892
Degirmenci, T., Aydin, M., Cakmak, B. Y., & Yigit, B. (2024). A path to cleaner energy: The nexus of technological regulations, green technological innovation, economic globalization, and human capital. Energy, 311, 133316.
Dong, H., Zhang, L., & Zheng, H. (2024). Green bonds: Fueling green innovation or just a fad? Energy Economics, 135, 107660.
Dou, Y., Masulis, R. W., & Zein, J. (2019). Shareholder wealth consequences of insider pledging of company stock as collateral for personal loans. The Review of Financial Studies, 32, 4810–4854.
Fan, J. P. H., & Wong, T. J. (2002). Corporate ownership structure and the informativeness of accounting earnings in East Asia. Journal of Accounting and Economics, 33, 401–425.
Guo, J., Zhao, X., & Fu, Y. (2025). Green finance, technological innovation, and low-carbon development in logistics industry: Mechanisms and threshold effects. Environment, Development and Sustainability.
Guo, K., Ke, B., & Tang, S. (2023). Private firms’ financial constraints and share pledging by controlling shareholders of publicly listed firms: Evidence from China. Journal of Corporate Finance, 80, 102393.
Gustiari, R. (2023). Techno-Economic Analysis of Utilization of Tofu Production Liquid Waste into Liquid Organic Fertilizer Using Experimental Methods. Journal of Economics Business Industry, 1(1), 10–18.
Han, F., Mao, X., Yu, X., & Yang, L. (2024). Government environmental protection subsidies and corporate green innovation: Evidence from Chinese microenterprises. Journal of Innovation and Knowledge, 9(1), 100458.
Headey, D., & Martin, W. J. (2016). The impact of food prices on poverty and food security. Annual Review of Resource Economics, 8(1), 329–351. https://doi.org/10.1146/annurev-resource-100815-095303
Hu, J., Long, W., Luo, L., & Peng, Y. (2021). Share pledging and optimism in analyst earnings forecasts: Evidence from China. Journal of Banking and Finance, 132, 106245.
Illge, L., & Schwarze, R. (2009). A matter of opinion: How ecological and neoclassical environmental economists think about sustainability and economics. Ecological Economics, 68, 594–604.
Imai, K. S., Gaiha, R., & Bresciani, F. (2020). Poverty, inequality, and agriculture in South and Southeast Asia. Asian Development Review, 37(1), 87–124.
Ji, H., Suo, L., & Yu, Y. (2025). How speculative culture shapes green innovation performance: A dual regional and institutional lens. South African Journal of Economic and Management Sciences, 28(1), 5810.
Jiang, G., Lee, C. M. C., & Yue, H. (2010). Tunneling through intercorporate loans: The China experience. Journal of Financial Economics, 98, 1–20.
Kaplan, S. N., & Zingales, L. (1997). Do investment-cash flow sensitivities provide useful measures of financing constraints? The Quarterly Journal of Economics, 112, 169–215.
Lashley, B., Morrow, N., & Smith, W. (2022). Food price volatility and poverty in developing countries: A cross-national panel analysis. World Development, 151, 105767. https://doi.org/10.1016/j.worlddev.2021.105767
Lee, T. S., & Yeh, Y. H. (2004). Corporate governance and financial distress: Evidence from Taiwan. Corporate Governance: An International Review, 12, 378–388.
Li, J., Qu, S., Peng, Z., Ji, Y., & Boamah, V. (2024). The impact of green finance on carbon productivity: The mediating effects of the quantity and quality of green innovation. Journal of Environmental Management, 370, 122952.
Praveen, B., Rath, B. N., & Akram, V. (2025). A new way of thinking about the nexus between green energy and green economic growth: The mediating role of green finance and green technology. Journal of Environmental Management, 390, 126235.
Raza, S. A., Shah, N., & Arif, I. (2023). Food price volatility, food security, and poverty in Pakistan. Journal of Asian Economics, 84, 101554. https://doi.org/10.1016/j.asieco.2022.101554
Rong, K., & Liu, R. (2024). Why do Chinese multinationals in South Africa get benefits from digital business strategy? South African Journal of Economic and Management Sciences, 27(1), 5473.
Tan, X., Liu, G., & Cheng, S. (2024). How does ESG performance affect green transformation of resource-based enterprises: Evidence from Chinese listed enterprises. Resources Policy, 89, 104559.
Tang, H., Tong, M., & Chen, Y. (2024). Green investor behavior and corporate green innovation: Evidence from Chinese listed companies. Journal of Environmental Management, 366, 121691.
Wahyuni, D., Purnomo, S. H., & Antriyandarti, E. (2023). Cooking oil crisis, smallholder vulnerability, and food security in Central Java. Agricultural and Food Economics, 11(1), 18. https://doi.org/10.1186/s40100-023-00264-z
Wang, M., & Zhang, Y. (2024). Controlling shareholders’ equity pledge, litigation risk and corporate ESG performance. International Review of Economics and Finance, 95, 103453.
Wang, Y., & Yu, L. (2021). Can the current environmental tax rate promote green technology innovation? Evidence from China’s resource-based industries. Journal of Cleaner Production, 278, 123443.
Xia, L., Gao, S., Wei, J., & Ding, Q. (2022). Government subsidy and corporate green innovation: Does board governance play a role? Energy Policy, 161, 112720.
Zhang, D., Mohsin, M., & Taghizadeh-Hesary, F. (2022). Does green finance counteract the climate change mitigation: Asymmetric effect of renewable energy investment and R&D. Energy Economics, 113, 106183.
Zhang, G., Wang, Y., Zhang, Z., & Su, B. (2024). Can green finance policy promote green innovation in cities? Evidence from pilot zones for green finance reform and innovation in China. Journal of Environmental Management, 370, 122816.
Downloads
Published
How to Cite
Issue
Section
License
Copyright (c) 2025 Shu Hsien Lin, Wang Kuei Yuan, Leszek Niewdana, Lin Zih Ying
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.
