NISM Certifications · NISM-Series-XV: Research Analyst · Company Analysis - Business and Governance
A research analyst reviews a company's promoter shareholding pattern. Which observation is the strongest governance red flag?
A high and rising share of promoter holdings pledged against loans is the biggest red flag. A price fall can trigger invocation of the pledge, forced selling and loss of promoter control, and it may indicate financial stress in the promoter group.
- APromoter holding stays steady at 55% for five years
- BA high and rising proportion of promoter shares pledged as collateral for loansCorrect
- CPromoters participate in a rights issue pro rata
- DThe company has a mix of institutional and retail public shareholders
Explanation
Rising pledged promoter shares signal financial stress or leverage at the promoter level. If the share price falls, lenders may invoke the pledge, causing a forced sale and possible loss of control. The other options are neutral or positive signals.
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