Rajhans, R K (2024) Promoters’ equity pledging, policy uncertainty and firm-level cash holding: Evidence from an emerging market. Journal of Financial Management of Property and Construction, 29(3), pp. 470-484. ISSN 1366-4387
Abstract
Purpose: This paper aims to explore the relationship between economic policy uncertainty (EPU) and promoters’ share pledging activity for real estate and construction firms in India. The author further divides the sample into financially sound and financially constrained firms and re-examines the relationship between EPU and promoters’ share pledging activity for them. Additionally, the author investigates the moderating effect of EPU on firm-level cash holding for pledged firms. Design/methodology/approach: The author conducts multiple regression to examine the effect of EPU on the share-pledging activity of a firm on sample data of Indian construction and real estate firms. The financial and pledging data was collected for all listed firms from March 2009 to March 2020 from the Centre for Monitoring Indian Economy. The EPU data was re-estimated using the three-period moving average method. All data used in the study was collected from secondary sources. Findings: The author finds that EPU influences pledging activity, and the association between them is opposite for financially constrained and financially sound firms. Also, the author reports that an increase in EPU increases firm-level cash holding for pledged firms, and the interaction between EPU and share pledging is significantly associated with firm-level cash holding. Practical implications: The managerial implications of this study are manifold. Managers of financially constrained firms should pay attention to the promoters pledging activity so that in a rising EPU environment, issues of managerial entrenchment can be avoided. Moreover, any further promoters’ share pledging activity under rising EPU conditions may force managers to hoard higher cash and thus reducing investment and profitability. Originality/value: This paper presents evidence of relationship between EPU, share pledging activity and firm-level cash holding in an emerging economy. The study also compares the response of financially constrained and financially sound firms for EPU on equity pledging activity and that of equity pledging on firm-level cash holdings. © 2024, Emerald Publishing Limited.
| Item Type: | Article |
|---|---|
| Uncontrolled Keywords: | cash holding; economic policy uncertainty; financially constrained firms; share pledging |
| Index terms: | emerging market, India, evidence, promoter, emerging economy, manager, economic policy, monitoring, methodology, profitability, interaction, multiple-regression, real estate, construction firm |
| Subjects: | research methods, organization, behavioral psychology, economic analysis, practitioner, evaluation and assessment methods, real estate economics, economic development, Geography, statistical analysis, sociology, control systems, business policy |
| Topics: | International Construction, Stakeholder Management, Governance, Business Strategy, Research Practice, Roles and Professions, Site Management, Geographical Context, Urban Studies |
| Descriptive scope: | 4 PCTA |
N.B. Descriptive scope is a count of how many of the five facets of empirical research are indicated by the words used in title, abstract and keywords. It is not intended as a judgement on the research; merely a count of the kind of word we would expect to indicate Phenomenon, Concepts, Theoretical framing, Empirical techniques, Analytical techniques. If all five are present, then a code of “5 PCTEA” will indicate this. If you feel the coding for this record is questionable, we welcome discussion around the terms we matched or the way we categorized them. The facet you would expect may not be coded, or a facet may be coded inappropriately. This can also bear on a larger question, of which facets should be treated as defining in construction management research. Please get in touch, and we will look at it. More details here