Equity Pledging, Financial Regulation, and Corporate Litigation Risk

Using Chinese A-share listed firms from 2011 to 2024, this study finds that controlling-shareholder equity pledging significantly increases firms’ litigation frequency. Mechanism evidence indicates that pledging elevates litigation risk by tightening financing constraints and intensifying accrual-based information manipulation. We further show that stronger city-level financial regulation weakens the pledge–litigation relationship. Cross-sectional results suggest that the adverse effect is more pronounced among firms with weaker external governance and non-high-tech firms.