“An Analysis of Promoters Pledge Shares by Using Altman Z Score Model”

Abstract

Pledging of shares refers to the practice where shareholders (often company promoters or insiders) use their shares in a company as collateral to secure loans or other forms of financing. This means that the shares are pledged to a lender or financial institution as a guarantee for the repayment of the loan. If the borrower defaults on the loan, the lender has the right to seize the pledged shares. This research paper emphasizes Promoters' Equity Shareholding pledging and its relationship with Financial Distress and Financial performance. Today many Companies (listed on Indian Stock Exchange promoters) are pledging their Equity shares for various purposes. In this study we have selected six group companies of the Renowned and well-known corporate house namely Future Group which are listed on National Stock Exchange. The promoters of these companies have off late ledged their equity shares with Financial Intuitions. Financial distress is a condition in which a company or individual cannot generate sufficient revenues or income, making it unable to meet or pay its financial obligations. The main aim of the research undertaken is to find out whether a company is in Financial Distress using 10 years data for the company Future Group. Data collected on various financial parameters from the year 2010 till 2021. The method used is a case study method with specific company only. The research also tries to find Before and After pledge financial performance and Financial Solvency position using Altman Z Score Model. The pledging of shares is a common financial practice used to secure loans or financing by using shares as collateral. While it can provide liquidity and access to capital, it also introduces risks related to financial stability, market perception, and governance. Understanding the implications of share pledging is crucial for investors, creditors, and regulators to assess the potential impact on a company's financial health and stability. The present paper is based on secondary data. The data analysis is done through data collected from journals, book website and periodicals etc.