Widely read:
Promoter pledging is an important analytical parameter. When promoters pledge shares, they keep shares as a collateral with a financial institution, such as banks, to raise money. It's just like mortgaging something for money.
Pledging is not always bad. Many times, promoters pledge their stake for sound business reasons and later release their pledged shares. But pledging takes an ugly turn when the pledged stake is high and the promoter is unable to pay back the dues. This may force the financing institutions to sell the pledged stake, which can result in a sudden fall in stock price and the dilution of promoter stake in the company.
A high pledged stake also indicates a bad management. Investor should stay away from companies that have high levels of pledging.
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