Research On Short-Selling Limitation And Diversification Discount Of Listed Companies

This paper mainly studies the relationship between short-selling limitation,diversification and diversification discount of listed companies.Diversification is a common choice for a company which developed to mature stage.Listed companies are usually high-quality companies with considerable scale and profitability.Many listed companies are implementing diversification strategy.Diversification discount refers to the phenomenon that the value or performance of a company declines after it has carried out business in many industries due to the influence of such factors as principal-agent problems,limited attention,information asymmetry and ineffective management.The phenomenon of diversification discount has been observed from many empirical studies,and the causes of diversification discount have also been studied by many scholars.By reviewing the available literature on diversification,it is found that the research on the causes of diversification discount focuses on the perspective of corporate governance,and the empirical data are mainly accounting data.However,the value of listed companies is closely related to the securities market.When discussing the diversification of listed companies,it is valuable to consider the factors of securities trading system.There are few studies on whether short-selling restrictions can affect diversification discount in the available literature.This paper studies the impact of short-selling limitation on diversification discount from the perspective of the securities market,combined with diversified management.The logic of this paper is that the stock market has the function of price discovery.However,due to the influence of margin trading system of the Chinese stock market,some of the listed companies' shares are the subject of margin trading,so their stocks can be sold by margin trading.In this way,the negative information can be more clearly reflected in the stock price.On the other hand,some listed companies are not subject of margin trading,so there is no short-selling way for their stocks.As for a diversified listed company,if it's stock is the subject of margin trading,then the stock price of the company is more easily to be cut down.This paper also makes an in-depth analysis of diversification.According to the correlation of companies involved in the industry,the diversified companies are divided into related diversification and unrelated diversification for further discussion.The diversification discount may be more evident when the stock price easier to fall.This paper uses Tobin's Q and indicators calculated by excess value method to measure diversification discount,and uses the ratio of short selling volume to total equity to measure the strength of short selling limitation.Selecting panel data of Chinese stock market from 2010 to 2017 to do regression analysis,we find that:(1)Diversification discount phenomenon exists in Chinese Stock market;(2)The weaker the short-selling limitation,the more evident the diversification discount can be.Diversification discount becomes more obvious when short-listed companies are not Short-selling Limited;(3)Irrelevant diversification will increase the degree of diversification discount because of ineffective management and limited attention,but there are synergistic effects among relevant diversification business departments,which can share resources,technology and channels,on the contrary,it can enhance the company's value and ease diversification discount.