Does short selling affect the investment of Chinese firms? An external financing perspective

Leixi Wang, Huiwen Zou and Xiaoyong Li

Asia-Pacific Journal of Accounting & Economics, 2022, vol. 29, issue 3, 649-672

Abstract: The objective of this paper is to explore the effect of short selling on firm investment from the perspective of external financing. We find that short selling makes it more difficult for firms to finance investment projects with external funds, and firms react to this exogenous shock by reducing their investment. The effect is more obvious in firms with lower stock price synchronicity, more investment in innovation projects and more severe internal financing constraints. Moreover, we find that after removing short selling constraints, the value-added effect of firm investment on firm value is enhanced.

Date: 2022
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DOI: 10.1080/16081625.2020.1787852

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Asia-Pacific Journal of Accounting & Economics is currently edited by Yin-Wong Cheung, Hong Hwang, Jeong-Bon Kim, Shu-Hsing Li and Suresh Radhakrishnan

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