| dc.description.abstract | This study utilizes data from Taiwanese publicly listed companies from 2016 to 2020 and employs ordinary least squares (OLS) multiple regression analysis to explore the relationship between directors′ share pledging and corporate financing costs. Unlike existing literature, which often separately examines the relationship between directors′ pledging and debt costs or costs of equity of capital, this study uniquely investigates the impact of share pledging on the implied cost of capital, a perspective seldom explored in recent Taiwanese studies. The calculation of the implied cost of capital is more complex compared to using the beta coefficient in single-factor models. According to Li and Mohanram (2014), the advantage of this approach is its ability to reduce survivor bias and improve model accuracy.
The empirical results indicate the following: First, with respect to the ratio of directors′ and supervisors′ share pledging, a higher pledging ratio correlates with an increase in the implied cost of capital and debt financing costs in the next fiscal year, but it has no significant impact on the cost of equity financing. Similarly, when measuring the extent of pledging using a dummy variable with cut-off points at 31.15% and 0%, directors′ and supervisors′ share pledging worsens the implied cost of capital and debt financing costs in the next fiscal year but still shows no significant effect on beta . Finally, in an additional analysis of the interaction between share pledging and the market value of real estate, it is found that companies with higher real estate market values experience a more moderate increase in the implied cost of capital, debt financing costs, and equity financing costs in the following year due to share pledging by directors.
In conclusion, this study not only explores the impact of directors′ share pledging on the cost of capital from the perspective of the implied cost of capital but also analyzes its effects on other financing costs. The findings indicate that share pledging by directors leads to an increase in corporate financing costs, which, in the long term, is detrimental to corporate profitability, future competitiveness, and operational stability. Therefore, management should consider the impact on corporate financing costs before pledging their shares to obtain funds, to ensure sustainable business operations. | en_US |