A Study Of The Impact Of Short-Selling On Corporate Risk-Taking In China

Based on the quasi-natural experiment of expanding the distribution of securities financing business in China,using the data of A-share listed companies from 2008 to2020,I firstly investigate the impact of short selling on corporate risk-taking.Secondly,in order to more clearly identify the channels through which short selling affects corporate risk-taking,this paper conduct a road mechanism test based on agency costs and information disclosure quality.Thirdly,heterogeneity tests are conducted to distinguish different firm risk-taking behaviors,property rights nature and marketability.Finally,the impact of risk-taking level on firm performance is tested.The main research findings obtained from the paper are as follows:(1)The risk-taking level of firms increases significantly after entering the short-sale list,indicating that short selling can enhance the risk-taking level of firms.The conclusions still hold after using PSM-DID,Placebo Test,replacing short sale variables,removing samples entering the list in the current year,removing CSI300 Constituent Stocks,and replacing the sample interval.(2)The mechanism test firstly finds that short selling reduces corporate agency costs,inhibits executives’ risk-averse behavior,strengthens investment in risky projects that are beneficial to long-term corporate development,and promotes corporate risk-taking.Short selling also improves the quality of information disclosure,reduces external financing constraints,and alleviates the constraints on improving corporate risk-taking due to insufficient capital.(3)The heterogeneity test distinguishing different firms’ risktaking behaviors finds that: first,short selling can promote firm innovation,and when the patents are divided into invention patents and non-invention patents,it is found that short selling significantly promotes the application and granting of invention patents,which means that short selling promotes firms’ substantive innovation.Second,short selling can reduce the financial leverage of firms.Third,short selling decreases firms’ cash holdings.The heterogeneity test distinguishing the nature of property rights finds that the promotion of short selling on corporate risk-taking is more significant in stateowned enterprises compared to non-state-owned enterprises.The heterogeneity test distinguishing the degree of marketability finds that the contribution of short selling to corporate risk-taking is more pronounced in firms with a high degree of marketability than in firms with a low degree of marketability.(4)The economic consequences test finds that short selling promotes corporate risk-taking and thus enhances corporate performance.The findings of this paper have important theoretical implications.First,this paper systematically investigates the transmission channel of "short selling → agency cost and information environment → risk-taking",which further improves the relevant research framework.Second,this paper expands the study of the economic consequences of short selling mechanism.This paper not only enriches the corporate governance effects of short selling mechanism from the perspective of corporate risktaking,but also enriches the research on short selling and innovation,financial leverage,and cash holding.Again,this paper enriches the research on corporate risk-taking based on the exogenous perspective of short selling.Finally,this paper explores the paths through which short selling affects firm risk-taking.This paper finds that short selling enhances corporate risk-taking by reducing agency costs and improving the quality of information disclosure,further enriching the research on the mechanisms associated with short selling and corporate risk-taking.The findings of this paper also have important practical implications.First,this paper provides positive theoretical evidence on the development of short-selling business in China,which is of great practical significance for further improving the short-selling mechanism.Therefore,regulators should further improve the construction of China’s securities market so that short selling can better play its corporate governance utility.Secondly,this paper provides the relevant theoretical basis for how policy makers can properly guide firms to choose the appropriate level of risk-taking.The results of this paper show that the impact of short selling on risk-taking is affected by the nature of property rights and the degree of marketization,therefore,policy makers need to guide enterprises to choose the appropriate level of risk-taking according to the nature of property rights and the degree of marketization.