Can the Short-selling System Alleviate Financing Constraints on Listed Companies?

DOI: https://doi.org/10.62517/jse.202611306

Author(s)

Ke Wang

Affiliation(s)

International Business School, Gengdan Institute of Beijing University of Technology, Beijing,China *Corresponding Author

Abstract

Within the context of the construction of Chinese-style modernisation, Providing high-standard financial backing to boost the advancement of the real economy has turned into a key research and practical priority.However, the constraints on financing that are prevalent among publicly-traded corporations have a long-standing history of impeding corporate innovation and vitality. The issue of "difficult and expensive financing" has been particularly salient for private enterprises and small and micro businesses. The fundamental causes of this phenomenon are rooted in the inherent asymmetries in information exchange between financial institutions and business entities. This is compounded by the challenges associated with accurately assessing financial risks and the imbalanced distribution of credit resources. As a vital credit transaction instrument, the short-selling regime plays a key role in China's capital market development. Since its pilot launch in 2010, it has undergone multiple expansions, with its external governance effects becoming gradually evident. Nevertheless, a consensus on the impact and transmission mechanisms of the short-selling system on corporate financing constraints remains elusive.We take Chinese A-share firms listed in both the Shanghai and Shenzhen capital markets during the period of 2015–2020 as the empirical research objects.Using a multi-period difference-in-differences model, along with mediation and moderation analyses, this paper empirically examines how the short-selling mechanism influences the financing constraints of listed firms, along with the underlying transmission channels. We further verify the mediating effect of information asymmetry and the moderating roles of regional marketization and firm ownership type. The findings indicate that short-selling regulations can substantially mitigate financing constraints experienced by listed companies, with information asymmetry emerging as a mediating factor in this process. In addition, this dampening effect is notably stronger in regions distinguished by a higher level of market development and for privately owned enterprises.This study contributes to the theoretical framework by providing empirical evidence and policy implications regarding the relationship between capital market institutional reforms and corporate financing.

Keywords

Short-Selling System; Financing Constraints; Information Asymmetry

References

[1] Bao Shaoqing, Guo Weizhen. On the Construction of Short-Selling Mechanisms in China’s Capital Markets from the Perspective of External Governance of Listed Companies: With a Discussion on the Short-Selling Function of the Margin Trading System [J]. Southern Finance, 2023, (02): 61–75. [2] Kai Changping. The Impact of Margin Trading and Short Selling on China’s Securities Market [J]. China Finance, 2010, (04): 56–58. [3] Wang Xingyu. Market Risk Analysis of Introducing a Short-Selling Mechanism into China’s A-Share Market [J]. Financial Theory and Practice, 2011, (12): 15–18. [4] Zhu Hongsu. A Brief Discussion on Margin Trading and Short Selling in China [J]. Finance and Accounting Bulletin, 2011, (02): 42–44. [5] Xu Feng, Lü Xian, Qu Jinli. A Study on the Effectiveness of Short Selling in Alleviating Corporate Financing Constraints [J]. Research on Financial Regulation, 2025, (01): 41–58. [6] Xiao Xiang, Liang Xu, Yu Ziqin, et al. Disclosure of Key Audit Matters, Information Transparency and Corporate Financing Constraints [J]. Chinese Certified Public Accountant, 2023, (07): 28–33+3. [7] Xu Feng, Lü Xian, Zheng Yaodong. Bank Competition, Short-Selling Mechanisms and Corporate Financing Constraints [J]. Financial Research, 2024, (06): 132–150. [8] Li Guizi. Earnings Management, Disclosure of Intangible Assets and Corporate Financing Constraints [J]. Accounting and Finance Bulletin, 2020, (18): 39–42. [9] Liu Dehong, Li Yamin. The Impact of the Development of the Social Financing System on Corporate Financing Constraints [J]. Journal of Beijing Jiaotong University (Social Sciences Edition), 2020, 19(03): 54–63. [10] Wei Jian, Xue Qihang, Wang Huimin. Crimes Disrupting Financial Management Order Exacerbate Corporate Financing Constraints [J]. Economics (Quarterly), 2025, 25(05): 1202–1218. [11] Li Zhisheng, Li Hao, Ma Weili, et al. The Information Governance Effects of Margin Trading [J]. Economic Research Journal, 2017, 52(11): 150–164. [12] Fazzari S M, Hubbard R G, Petersen B C. Financing Constraints and Corporate Investment [J]. Brookings Papers on Economic Activity, 1988 (1):141–206. [13] Myers S C, Majluf N S. Corporate Financing and Investment Decisions When Firms Have Information That Investors Do Not Have [J]. Journal of Financial Economics, 1984, 13 (2):187-221. [14] Easley D, Kiefer N M, O'Hara M, et al. Liquidity, Information, and Infrequently Traded Stocks [J]. The Journal of Finance, 1996, 51 (4):1405–1436.