Controlling Shareholder's Share Pledging and the Corporate Artificial Intelligence Washing: Evidence From China

ABSTRACT Controlling shareholder share pledging exposes the controlling shareholder to the risk of losing corporate control in the event of a stock price decline. This paper aims to examine whether controlling shareholder share pledging drives corporate AI washing, and to identify the mechanisms through which this effect operates. This study indicates that controlling shareholder share pledging exerts a significant and robust exacerbating effect on corporate AI washing. The mechanism through which this effect operates lies in heightened earnings aggressiveness and aggravated information opacity. Besides, agency problems significantly strengthen this positive relationship, as controlling shareholders with greater agency discretion face fewer internal constraints on opportunistic AI disclosures. Analyst coverage, however, attenuates this exacerbating effect, consistent with the view that external monitoring by information intermediaries disciplines controlling shareholders' opportunistic behavior and mitigates the informational consequences of share pledging. From the perspective of controlling shareholders' financing behavior, this paper examines the driving effect of share pledging on corporate AI washing through heightened earnings aggressiveness and aggravated information opacity, thereby introducing this emerging opportunistic practice into the literature on the real effects of share pledging. Meanwhile, agency problems reinforce this effect from the internal governance perspective, while analyst coverage attenuates it from the external monitoring perspective, providing practical insights for regulators and investors to curb AI washing through the integration of internal and external governance mechanisms.