Short selling and financial reporting quality: Evidence from Chinese AH shares

The influence of the deregulation of short‐selling on related‐party transactions: Evidence from China

“…Khurana et al (2017) analyze the monitoring role of the Big 4 in an international context and find that the Big 4 reduces the likelihood of an Initial Public Offering (IPO) stock-underpricing, although only in countries with weak institutions because Big 4 auditors tend to provide a higher level of audit quality to compensate for institutional constraints. Jiang and Chen (2019) find that when shareholder protection and the legal environment are weak at the macro-level, short-sellers play more active roles in assessing firms' information quality, thereby restricting managers' opportunistic-reporting behaviors.…”

“…Recently, a stream of research reveals the disciplinary role of short-sale and its effect on a firm's financial-reporting and managerial decision-making. Short-sellers are reported to curb firms' accrual earnings management (Fang et al, 2016;Jiang & Chen, 2019;Massa et al, 2015) and real-earnings management , uncover firms' misconduct (Hirshleifer et al, 2011;Karpoff & Lou, 2010), and induce firms to increase long-run good news forecasts (Chen et al, 2020). Regarding other aspects of managerial decision-making, Gilchrist et al (2005) and Grullon et al (2015) reveal that short-selling constraints, as well as the removal of these constraints, alter a firm's conventional investment activities (such as ordinary capital expenditures) and financing decisions.…”

“…In this study, the governance mechanisms include analysts following the firm, media coverage, shareholders' protection of the region in which firms operate, and the strength of the firms' internal control. Short-sellers are motivated to be more vigilant about managerial opportunism and the expropriation of shareholders' wealth in a weak institutional environment, which is characterized by lower levels of shareholder protection and law enforcement (Jiang & Chen, 2019). Thus, we argue that short-sellers' disciplinary effect on managers' conduct of RPTs varies with the strength of the firms' external or internal governance strengthshort-sellers' disciplinary effect is more pronounced when the strength of regulations and shareholder protection is weak.…”

Short-sale refinancing and earnings response coefficient: evidence from China

“…Furthermore, companies being short-sold severely have worse performance and higher delisting rates. For example, Park (2017) finds that the higher degree of real earnings management, the higher proportion of stocks to be short-sold, and this phenomenon is more apparent in companies with weaker internal control (Jiang and Chen, 2019). At the same time, small companies with poor information environment that reduces previously reported income are targeted heavily by short sellers (Drake et al, 2015).…”

“…Massa et al (2012) argue that short selling mechanism play an important monitoring role in supervising management's behavior and reducing the extent of earnings management, as short sellers actively explore companies with financial misconduct and pass the information to external shareholders (Karpoff and Lou, 2010). With the improvement of corporate governance, the probability of financial violations would be decreased and earnings quality thereby is expected to be improved (Jiang and Chen, 2019;Chen and Liu, 2014;Massa et al, 2012). Earnings quality is not only a comprehensive indicator of the above three points but also the focus of corporate governance research (Schipper and Vincent, 2003;Yang and Liu, 2018;Zhang et al, 2016;Shahzad et al, 2019).…”