OK, let's talk. Firms’ willingness to communicate with retail investors: Evidence from controlling shareholders’ equity pledging

Using data on Chinese A-share listed companies from 2010 to 2022, this paper empirically examines firms’ interactive communication with retail investors on investor interactive platforms (IIPs) in the Chinese stock market after controlling shareholders’ equity pledging activities. Our findings reveal a significant and positive correlation between controlling shareholders’ equity pledging activities and firms’ willingness to engage in firm-investor interaction. This willingness is driven by higher investor information demands and greater stock price crash risk. Furthermore, we observe that firms respond more actively to investors’ inquiries when pledges are frequent, have a longer duration, and are partly used for private purposes or for third parties. Moreover, firms’ interaction is more intensive if they are not state-owned enterprises, and when controlling shareholders exhibit more evident tunneling behavior and face significant margin call pressure. Finally, our analysis suggests that firms’ engagement on IIPs is also strategic, where firms provide insufficient, irrelevant, and less specific responses to investors’ inquiries despite more active interaction. This finding suggests that firms may only pretend to be attentive to the investors rather than truly address their concerns.