NISM Certifications · NISM-Series-XV: Research Analyst · Company Analysis - Business and Governance
An analyst notes that a company's promoter has pledged a rising share of their holding with lenders over several quarters. What is the main concern this raises?
The main concern is that a falling share price could lead lenders to invoke the pledge and sell the promoter's shares, diluting promoter control and pushing the price down further. Rising pledging also suggests financial stress at the promoter level, making it a governance red flag.
- APromoter may be forced to sell shares if the price falls, creating control and sentiment riskCorrect
- BThe company's reported revenue is automatically overstated
- CThe company is certain to be delisted
- DMinority shareholders lose their voting rights
Explanation
If the share price drops, lenders may invoke the pledge and sell shares, which can reduce promoter holding and hit the price further. High pledging also hints at promoter financial stress. It does not by itself overstate revenue, trigger delisting or remove voting rights.
Did you get it right without looking?
One question tells you little. A timed set on Company Analysis - Business and Governance shows your real accuracy, how long you take and where you lose marks.
More Company Analysis - Business and Governance questions
- In analysing a company's business model, which of the following best describes a 'moat' in the context of competitive advantage?
- In analysing the governance of a listed company, which of the following is generally treated as a red flag by a research analyst?
- A company's promoters hold 60% of its equity, and 40% of the promoter holding is pledged with lenders. Total shares outstanding are 10 crore…
- Which statement about the role of a company's auditors in governance is most accurate?
- In corporate governance analysis, which board feature most directly strengthens oversight of management on behalf of minority shareholders?
- A company's board has 10 directors: 3 executive directors, 2 non-executive non-independent nominees of the promoter, and 5 independent direc…