Short Selling Mechanism And Corporate Debt Default Risk

Since the 19th National Congress,in order to effectively promote high-quality economic development,strengthen systemic financial risk prevention and control,promote the healthy development of finance and the real economy,the Party and the State have taken a series of measures to ensure the sound operation of the capital market.In the process of development,the Party and the State have placed an important position in effectively preventing and resolving secondary financial risks arising from corporate debt defaults,ensuring the stable operation of the capital market,and making it an important task for China’s economy to achieve high-quality development.With the development of the times,how to promote high-quality economic development has become an important topic for discussion in both academic and practical circles.With the release and implementation of the short selling mechanism,China’s unilateral market pattern has been changed,and the short selling mechanism has also been introduced for the first time.The introduction of short selling mechanism not only encourages more investors to participate in market transactions and protects their interests,but also improves the external governance environment of listed companies,strengthens the supervision of external governance environment of Chinese listed companies,facilitates corporate insiders to reduce the level of corporate risk,and has a significant impact on China’s capital market.Therefore,with the implementation of the short selling mechanism,China’s capital market will usher in significant changes which will help prevent and control potential financial risks caused by corporate debt defaults.In order to study the relationship between short selling mechanism and corporate debt default risk,this paper analyzes sample data of Shanghai and Shenzhen A-share listed companies from 2009 to 2021,and finds a certain link between short selling mechanism and corporate debt default.In this paper,this issue is explored in depth from the perspective of dual internal and external governance by using a dual difference model with multiple time points.Meanwhile,in order to gain a deeper understanding of the influence paths of both,this paper analyzes and validates the possible influence paths using a mediating effects model.The findings of this paper are as follow:(1)The short selling mechanism can effectively reduce the debt default risk of the underlying firms;(2)The short selling mechanism can reduce the possibility of debt default by reducing the operational risk of the underlying firms,in which operational risk plays a partial mediating role;(3)After an in-depth study,this paper finds that for firms with lower quality of internal control and stock liquidity,the effect is more significant;(4)With the increase of the scale of short selling transactions and the degree of stepwise expansion of financing and financing securities increase,the external governance role played by the short selling mechanism get stronger,and its inhibitory effect on the debt default risk of the underlying firms is more obvious;(5)After further controlling for endogeneity using dynamic parallel trend tests,placebo studies,and the PSM-DID method,the above findings still hold.Through the analysis of the dual internal and external governance of short selling mechanism,this paper attempts to reveal its connection with corporate debt default risk and interpret it from different perspectives,so as to provide theoretical and practical guidelines for China’s listed companies to enhance their operating ability,reduce debt default risk and promote market-oriented development.