Short Selling and Total-Factor Productivity: Evidence from a Quasi-Natural Experiment in China

Xuewen Kuang, Jing Jiang, Chenyu Luo and He Lin

Emerging Markets Finance and Trade, 2024, vol. 60, issue 10, 2111-2125

Abstract: This study examines the effect of short selling on total-factor productivity (TFP) using China’s short-selling pilot program as a quasi-natural experiment. Short-selling significantly improves TFP, and this positive effect is mainly driven by improvements in firms’ innovation ability and resource-allocation efficiency. The results are robust to potential endogeneity using propensity-score matching, a placebo test, and exogenous shocks. Further, the positive effect is more pronounced when external governance mechanisms (i.e. market competition and institutional investor supervision) are weak.

Date: 2024
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DOI: 10.1080/1540496X.2023.2284309

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