| Based on the launch of the margin system in China, we tested the impacts of short selling mechanism on earnings management behavior of listed companies with the relevant data from 2008 to 2015. The method we use is the double-difference model. We found that short selling mechanism has different effects on different varieties of earnings management behavior of listed companies due to the replacement effect between real earnings management and accrued earnings management. The shorting mechanism has an inhibitory effect on accrued earnings management behavior of listed companies while for real earnings management behavior it has a promoting effect. This result indicates that the impact of short selling mechanism on the earnings management behavior of listed companies is still superficial, since it only exercises its restraints upon the surface of the earnings management behavior, while has no significant inhibitory effect on more concealed earnings management behavior. On the contrary, it urges executives of listed firms to seek higher level of real earnings management to replace the influence of negative effects of the decline of accrued earnings management. It also illustrates the complexity of the managers' behavior of listed companies when facing enhancement of external supervision. In addition, we grouped all of our samples in terms of external institutional investors and internal management incentive mechanism, to examine whether the effectiveness of the corporate governance plays a role in our study. We found that although high institutional ownership helps shorting mechanism to play its role more effectively in corporate governance, the effect of institutional investors governance is still limited. The management compensation contracts of listed companies would increase the motivation of the managers to manipulate earnings to some extent, which also motivates executives to seek a higher level of real earnings management to replace the impact of accrued earning management. |
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