Accounting conservatism and short selling: Evidence from China

Zhi Jin, Bingxuan Lin, Xue Yang and Ting Zhang

Journal of Business Finance & Accounting, 2018, vol. 45, issue 3-4, 352-394

Abstract: Using China's short†selling pilot program as a quasi†experiment, we find that the prospect of short selling has significantly increased conditional accounting conservatism among firms that are eligible for short selling, consistent with a short sellers’ disciplining effect hypothesis. When short selling takes position ex post, accounting conservatism starts to decrease with an increased downward pressure on stock prices. Moreover, the short†selling effect of increased conditional accounting conservatism becomes stronger for state†owned enterprises, and this effect is accompanied by an increase of unconditional conservatism. As corroborating evidence to support the disciplining hypothesis, we show that accounting conservatism is significantly decreased for firms that are removed from the short†selling eligibility list. Our results are robust after considering the endogeneity issue in measuring downward stock price pressure, and after constructing the control firms by using both a propensity score matching method and an alternative measure for accounting conservatism. Overall, we provide important evidence on the feedback effects that the capital market has on firm financial reporting.

Date: 2018
References: Add references at CitEc
Citations: View citations in EconPapers (11)

Downloads: (external link)
https://doi.org/10.1111/jbfa.12302

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bla:jbfnac:v:45:y:2018:i:3-4:p:352-394

Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=0306-686X

Access Statistics for this article

Journal of Business Finance & Accounting is currently edited by P. F. Pope, A. W. Stark and M. Walker

More articles in Journal of Business Finance & Accounting from Wiley Blackwell
Bibliographic data for series maintained by Wiley Content Delivery ().