On this episode of the Family Business Voice, Dr Nupur Pavan Bang talks about share-pledging — what it looks like in practice, where it works and what family businesses should avoid.
Dr Bang, Associate Director of the Thomas Schmidheiny Centre for Family Enterprise at the Indian School of Business in Hyderabad, recently co-authored a study on the impact of share pledging for Indian firms. While it dispels some of the negative myths associated with share pledging, Dr Bang’s research also calls for caution, advocating a balanced approach for family enterprises considering the practice.
– In India, share-pledging has been very popular for decades now. Almost a quarter of all businesses listed on the National Stock Exchange of India have pledged their shares in some way. The average percentage of their holding that’s pledged is a staggering 44 per cent.
– There have been many high-profile cases in the last couple of years where Indian family promoters lost ownership of their company because of share-pledging.
– Despite these cautionary tales, the practice also has its benefits, freeing up capital for family enterprises to expand. Dr Bang’s ongoing research seeks to understand share-pledging in greater detail so that families can make informed decisions about the practice.