Can Short Selling System Improve the Quality of Information Disclosure of Listed Companies?

DOI: https://doi.org/10.62517/jel.202614226

Author(s)

Yilong Wang

Affiliation(s)

Shandong Yingcai College, Jinan, Shandong, China

Abstract

As an important external governance mechanism in capital markets, whether short-selling systems can improve the quality of information disclosure is a key issue concerning market efficiency. This paper uses the batch expansion of China's margin trading and securities lending target list after 2010 as a quasi-natural experiment, constructs a multi-period difference-in-differences model, and employs data from A-share listed companies from 2013 to 2023 to empirically test the impact, mechanism, and boundary conditions of short-selling systems on the quality of information disclosure by listed companies. The study finds that the introduction of short-selling systems can significantly improve the quality of information disclosure by listed companies, a conclusion that remains valid after a series of robustness tests. Mechanism analysis shows that short-selling primarily functions through two pathways: "improvement of the information environment" (e.g., attracting analyst attention, increasing negative media coverage) and "strengthening of supervisory deterrence" (e.g., enhancing auditors' risk perception, constraining management's tone manipulation). Further heterogeneity analysis reveals that the governance effect of short-selling mechanisms is more pronounced in non-state-owned enterprises, those with lower internal governance levels, and those with weaker external information environments. This study not only provides robust causal evidence from emerging markets on the information governance effects of short-selling systems but also deepens the understanding of the governance mechanisms of short-selling systems by uncovering the "black box" of effects and defining "contextual boundaries," offering important reference value for regulatory authorities to optimize margin trading policies and for listed companies to improve their information disclosure practices.

Keywords

Short Selling System; Information Disclosure Quality; Multi-period Difference-in-Differences Model; Information Mining; Supervision and Deterrence

References

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