Corporate Environmental and Social Governance Disclosure Behaviour under the Short Selling Mechanism: An Analysis of Effects, Mechanisms and Motivations

DOI: https://doi.org/10.62517/jel.202614412

Author(s)

Xinge Wu

Affiliation(s)

Soochow University, Suzhou, Jiangsu, China

Abstract

Against the backdrop of the global response to climate change and the growing emphasis on sustainable development, environmental, social and governance (ESG) disclosure has become a key metric used by capital markets to assess a firm’s long-term strategic resilience, non-financial risks and core competitiveness. However, given the voluntary nature of current global disclosure frameworks and the high costs associated with verifying substantive performance, listed companies generally possess a strong intrinsic incentive to engage in disclosure mismatches through strategic framing and exaggerated statements.This paper examines the impact of margin trading regulations on the environmental, social and governance (ESG) disclosure behaviour of non-financial listed companies on the Chinese A-share market from 2009 to 2024, under the scenario of lifted short-selling restrictions. From the perspective of capital markets and investment, the study investigates how the implementation of margin trading systems influences corporate ESG disclosure practices. In traditional literature, discrepancies in the underlying methodologies of different rating agencies can lead to biases in simple difference measures.To address this issue, this paper establishes a conditional residual misalignment measurement model based on micro-level financial fundamentals and corporate governance characteristics. The study yields the following findings: Firstly, when the short-selling mechanism curbs corporate exaggerated disclosure, the effect is not uniform across the entire sample, but rather exhibits targeted constraints. Short-selling capital targets firms in the top quartile of pre-treatment misalignment risk, and significantly reduces the positive misalignment of these firms.Secondly, intense regulatory scrutiny in capital markets has created defensive information-constraint incentives for some high-risk firms. To avoid potential external scrutiny and litigation risks, these firms have substantially reduced voluntary disclosures, leading to a marked increase in reverse misalignment. Thirdly, mechanism tests indicate that the core transmission channels of short-selling constraints rely heavily on in-depth investigation of negative news by professional financial media and a significant improvement in the accuracy of analysts’ forecasts.In terms of econometric methodology, this paper comprehensively introduces the heterogeneous robust interleaved difference-in-differences estimator. This estimator circumvents the negative weight bias inherent in traditional two-way fixed-effects models, thereby providing robust empirical evidence for understanding the governance boundaries of the short-selling mechanism in the realm of non-standard non-financial information.

Keywords

Short-Selling Mechanism; ESG Rating Divergence; Greenwashing; Information Disclosure; Quasi-Natural Experiment; Corporate Governance

References

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