Equity Pledge and the Accounting Choice of Enterprise Innovation Investment

Pledging equity is a faddish financing method in Chinese A-share companies. This paper focuses on the issue of accounting choices for companies' R&D expenses in the context of equity pledges by the company's controlling shareholders based on the hypothesis of the rational man. The research selected the data of China's A-share listed companies from 2010 to 2020 from CSMAR and applied the method of OLS. In the study, we found that when the controlling shareholders of companies pledged their holding shares, the enterprises would prefer to increase the capitalization ratio of the R&D expenditures. However, the positive relationship would be weakened in companies with equity balances, financing constraints, and non- high-tech companies. The conclusion was still valid after the robustness test. The results are developed to give investors and regulators suggestions when they read a company's financial report.