Rohith Radhakrishnan

Type of the article: Research Article

Abstract
Promoters’ share pledging represents a serious corporate governance problem in highly concentrated ownership environments, with substantial implications for firms’ financial reporting integrity and investors’ interests. This study examines the relationship between share pledging and accounting conservatism while evaluating the effectiveness of SEBI’s 2019 disclosure mandate (Regulation 31(1)) in curbing opportunistic reporting. Utilizing a panel of 1,933 Indian non-financial firms from 2015 to 2022, we employ a fixed-effects model and a difference-in-differences framework to analyze an accrual-based proxy of conservatism. The empirical findings indicate a positive relationship between promoters’ pledging and the accrual-based proxy, with firm-level (FL_Pledge) and promoter-level (PL_Pledge) pledging coefficients of 0.072 (t = 5.72) and 0.044 (t = 6.43), respectively, confirming that pledging firms engage in less conservative reporting. The difference-in-differences analysis reveals that the 2019 regulatory change reduced opportunistic reporting, as evidenced by a significant negative interaction coefficient of –0.010 (t = –2.99). Furthermore, the results show that post-regulation, the treated group’s association with the accrual proxy remains positive at 0.014 (t = 3.16), suggesting a shift towards more conservative accounting practices following mandatory disclosure. These results indicate that India’s disclosure-led regulatory frameworks serve as an alternative to the restrictive pledging caps observed in other emerging economies.