The monitoring of short selling: Evidence from China

Xiaohu Deng and Lei Gao

Research in International Business and Finance, 2018, vol. 43, issue C, 68-78

Abstract: In the world second largest economy, the largest emerging market, an environment that is characterized by a weak legal system, a high level of government intervention, and an underdeveloped but fast evolving financial market, we investigate whether short selling is associated with regulators’ enforcement actions and reduces the future crash risk. By using manually collected firm level lawsuit data, we find that short selling is positively associated with probability for the firm of being targeted or punished by CSRC (China Securities Regulatory Commission). In addition, we find short selling reduces the future stock price crash risk. These findings suggest that short selling monitoring provides supplementary monitoring power to the financial markets. Moreover, our results provide information that can inform policy making.

Keywords: Corporate regulation; China’s enforcement actions; Corporate governance; Short selling; Crash risk (search for similar items in EconPapers)
JEL-codes: G15 G34 G38 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (17)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:riibaf:v:43:y:2018:i:c:p:68-78

DOI: 10.1016/j.ribaf.2017.07.087

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