Short Selling and Politically Motivated Negative Information Hoarding

Xiaohu Deng (), Christine Jiang and Danqing Young
Additional contact information
Xiaohu Deng: Tasmanian School of Business & Economics, University of Tasmania
Christine Jiang: University of Memphis
Danqing Young: Chinese University of Hong Kong, http://www.bschool.cuhk.edu.hk/index.php/faculty-staff/show-alltest?pid=490&sid=380:Young-Danqing

No 2017-14, Working Papers from University of Tasmania, Tasmanian School of Business and Economics

Abstract: Extant literature documents that managers have an incentive to hoard bad news due to political concerns. In this paper, we test the proposition that short selling has an attenuating effect on the politically motivated suppression of bad news. We examine the stock price behavior of Chinese public firms around two highly visible political events - meetings of the National Congress of the Chinese Communist Party and Two Sessions (The National People’s Congress Conference and The Chinese People’s Political Consultative Conference) from 2002-2014, and find that political bad news hoarding has been reduced after short selling becomes available. We establish causality by relying on a difference-in-differences approach based on a controlled experiment of short selling regulation changes in China. We also find this reduction in bad news hoarding to be more pronounced in firms with stronger political connection (higher state ownership and larger size) and higher accounting opacity, which further confirms our finding. This study sheds new light on the real effects of short sellers on political impact on capital market.

Keywords: Short selling; Political force; Negative news hoarding; Information environment (search for similar items in EconPapers)
Pages: 42 pages
Date: 2017
New Economics Papers: this item is included in nep-cta, nep-pol and nep-tra
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Published by the University of Tasmania. Discussion paper 2017-14

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