Lifting Of Short Sale Constraint And Credit Rating

In the past 40 years of reform and opening up,with the development of China's financial market and the expansion of bond market,bond issuance has become an important direct financing channel for enterprises.As one of the most important ways for enterprises to issue bonds,corporate credit bonds have developed rapidly in recent years.According to the statistics of WIND in 2018,5246 principal issuers issued 10244 major credit bonds,with the issuance scale reaching 11.44 trillion yuan.The number of issuers increased by 27% compared with last year.The number and scale of issuance periods increased by more than 30%.Respectively,the stock periods and scale of major credit bonds were 23532 issues and 28.51 trillion yuan.Their proportion in the bond market increased significantly to nearly 28%.By the end of 2018,the amount of corporate credit bond financing in China has increased by 278 times in just 16 years.The proportion of credit bonds in the bond market has increased significantly,and has reached the form of "three-thirds of the world" with national debt and financial bonds.Credit rating is becoming more and more important role in the issuance of corporate credit bonds because of the need for credit rating.As a financial intermediary,Credit rating originated in the United States at the early twentieth century.Credit rating is mainly for market traders to provide trading information for decision-making reference.In 1902,Moody's Corporation pioneered the modern rating method for railway bonds at that time.Credit rating business began to appear in China in the 1980 s,and then extended to various financial products and various evaluation objects.As a main external way to measure the degree of credit risk of enterprises,corporate credit bonds must be issued with credit rating as a main external way to measure the degree of credit risk of enterprises.Therefore,corporate credit risk is the most important factor affecting credit rating(Grahama et al.,2007).China's capital market formally launched margin trading system on March 31,2010.As an innovative financial trading system,the introduction of short selling mechanism has an important impact on the capital market and corporate behavior.On the one hand,short-selling system can reduce the possibility of overvaluation of stocks,reduce the fluctuation of stock returns,stabilize the market operation efficiency,improve the level of corporate governance and other credit risk problems faced by enterprises;On the other hand,the short-selling system may increase the financing constraints of enterprises,increase the risk of enterprises,increase the risk of stock price crash and so on to improve the credit risk faced by enterprises.And then reduce the credit rating of enterprises.So,how does the relaxation of short selling restriction affect the credit risk of enterprises in China's capital market?Therefore,from the perspective of institutional change,based on principal-agent theory,information asymmetry theory,transaction cost theory and signal transmission theory.This paper selects listed companies with credit ratings available in 2008-2017 as research samples and taking lifting of short sale constraint as a quasi-natural experiment.This study examine the impact of the relaxation of short selling constraints on corporate credit rating and its specific mechanism,and verifies the regulatory role of different institutional environments and financial intermediary characteristics.Based on the above three aspects,according to the specific characteristics of each module,we make a further analysis.Finally,this paper draws the following conclusions.1.The short-selling restriction has been lifted and the long-term credit rating of the main body has been improved after the enterprises enter the companies that are subject to margin trading and securities lending.Relaxation of short selling constraints has a significant positive correlation with corporate credit rating.After excluding model errors,sample errors,other possible explanations and considering endogenous problems by using transformation model design,propensity score matching(PSM) and placebo test,the conclusion is still valid.This shows that the corporate governance level has been improved after the relaxation of short-selling constraint,which reduces the credit risk of enterprises and improves the credit rating of enterprises.Short-selling mechanism mainly reflects the governance effect on enterprises.This shows that the corporate governance level has been improved after the relaxation of short-selling constraint,which reduces the credit risk of enterprises and improves the credit rating of enterprises.Short-selling mechanism mainly reflects the corporate governance effect.It further validates the impact of short-selling mechanism on enterprise credit risk and takes into account the different situations of domestic and foreign rating differences and the nature of property rights.It is found that the governance effect of short-selling mechanism reduces enterprise credit risk and improves enterprise credit rating.This effect makes the difference between domestic and foreign rating significantly reduced,and is more significant in non-state-owned enterprises.This shows that the governance effect of short selling mechanism is mainly reflected in non-state-owned enterprises,and this governance effect is also recognized by foreign rating agencies.2.Relaxation of short selling constraints can improve corporate governance by restraining the private interests of major shareholders and management,thereby reducing corporate credit risk and improving corporate credit rating.Specifically,the introduction of short selling mechanism can restrict the tunneling behavior of major shareholders and earnings management behavior of management,improve corporate governance,and thus improve corporate credit rating.Further research using corporate governance index shows that the relaxation of short-selling constraints really improves corporate governance.At the same time,it proves the governance effect of short-selling is more significant in enterprises with higher equity concentration and management shareholding,and the relaxation of short-selling constraints has more significant impact on corporate credit rating.3.From the perspective of institutional environment and financial intermediaries,we further verify the impact of relaxing short-selling constraints on long-term credit rating of business entities.It is found that in the areas with better institutional environment,which is higher development of intermediary market and better legal environment,short selling mechanism has a more significant impact on the long-term credit rating of its main body.What means the governance effect of relaxing short selling constraint plays a better role.This shows that a good external institutional environment is conducive to the transmission of short selling mechanism.In addition,among rating companies with good reputation,the positive effect of relaxing short selling constraint on long-term credit rating is more significant.What means rating companies with good reputation are more sensitive to the governance effect of relaxing short selling constraint.And it is shows that the exertion of reputation mechanism is conducive to the credit of short selling mechanism.The positive effect of risk.The possible marginal contribution of this paper is mainly embodied in the following aspects.1.It provides a new way to test the influence of short selling mechanism on enterprise behavior.The existing literature on short-selling mechanism for corporate behavior is basically one-way consideration,that is,short-selling mechanism is beneficial to poor corporate behavior on the one hand,including restraining the private interests of major shareholders and management,improving corporate investment decision-making,cash holding value,information disclosure quality,enterprise innovation efficiency and merger and acquisition performance on the other hand,which is conducive to corporate governance.Otherwise the negative side of short selling mechanism to corporate behavior,including aggravating market volatility,leading to the collapse of the underlying company's stock price,increased risk and other issues.What are the ways in which short-selling mechanism affects corporate behavior? There is no unified conclusion.From the perspective of credit rating,this paper empirically examines the impact of short selling mechanism on corporate behavior.This study not only helps to clarify the impact of short selling mechanism on corporate behavior,but also provides a new test method and approach for future related research.2.This study is helpful to expand the existing research literature from various perspectives.On the one hand,existing studies have mainly focused on the impact of short selling mechanism on the pricing efficiency of capital market and corporate behavior.At present,the spillover effect of short-selling mechanism is mainly deposited on audit market fees,bank credit lines,analysts' prediction accuracy and so on.This paper expands the spillover effect of short-selling mechanism to rating market and expands related literature on Spillover Effect of short-selling mechanism.On the other hand,after the financial crisis,the validity of rating agencies' credit rating is often criticized.This study helps us to clearly understand the influencing factors of rating agencies' ratings,and expands the relevant literature on the influencing factors of rating agencies.3.The conclusions of this paper may have important reference value for listed companies,investors and regulators.Since the implementation of margin trading system,short selling has been implemented in China's capital market.As an innovative financial transaction system in China's capital market,its impact on the capital market has received sustained attention from both theoretical and practical circles.This paper links the short-selling system to the micro-enterprise behavior,and combines with the behavior decision of rating agencies,constructs a closed-loop research path of macro-financial policy,financial intermediaries and micro-enterprise behavior,and forms a relatively complete research framework.It provides empirical evidence for the effect test and later development of short selling system,and provides important reference value for improving the operation and development of micro-enterprises,optimizing investors' trading strategies and ultimately realizing the efficient operation of capital market.