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

Jiang, Haiyan; Tian, Gary Gang; Zhou, D.

doi:10.1111/jbfa.12511

Cited by 18 publications

(12 citation statements)

References 101 publications

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“…First, this paper adds to the short‐selling literature. While the majority of studies explore the monitoring and informational role of short‐selling pressure in the financial market (e.g., L. Chen, 2016; H. Jiang et al., 2020; Jin et al., 2018), relatively less is known about how firms make strategic actions in response to potential short‐selling threat. To the best of our knowledge, this paper is the first study to document that firms implement active IR strategies when they are exposed to short‐selling pressure.…”

Section: Introductionmentioning

confidence: 99%

“…First, this paper adds to the short-selling literature. While the majority of studies explore the monitoring and informational role of short-selling pressure in the financial market (e.g., L. Chen, 2016;H. Jiang et al, 2020;Jin et al, 2018), relatively less is known about how firms make strategic actions in response to potential short-selling threat.…”

Section: Introductionmentioning

confidence: 99%

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Investor relations under short‐selling pressure: Evidence from strategic signaling by company site visits

Ling

Yan

Cheng

2022

Business Fin & Account

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Exploiting the staggered deregulation of short sales in China as a quasi-experiment, we investigate whether firms change investor relations (IR) strategy when they face short-selling pressure. We document significant increases in IR efforts as measured by the frequency of company visits when firms' stocks become shortable in the market. Our cross-sectional tests further reveal that pilot firms' engagements of such IR activities vary with their ex-ante operating performance, accounting quality, short-selling threat and ownership structure. Moreover, we find that pilot firms with higher IR efforts experience fewer subsequent short sales. We further document that corporate IR efforts are associated with more positive media coverage and facilitate subsequent external financing and capital investment. In addition to the site visits, we also find that pilot firms increase their response rates on online IR platforms. Collectively, results are consistent with our prediction that firms take proactive IR actions as strategic signaling to assist investor communication and discourage short sellers. The findings also suggest that IR activities are effective to reconstruct market perceptions and mitigate downside impacts on firms' operations produced by short sales.

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Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Investor relations under short‐selling pressure: Evidence from strategic signaling by company site visits

Ling

Yan

Cheng

2022

Business Fin & Account

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“…Existing scholars have studied the external governance effect of short-selling mechanism on listed companies from different perspectives. These governance paths include restraining the company’s major shareholders and management’s interests, such as embezzling company cash ( Hou et al, 2016 ), excessive investment ( Chang et al, 2015 ), corporate violations ( Meng et al, 2019 ), m&a activity ( Wei et al, 2020 ), related-party transactions ( Jiang et al, 2020 ; Stephana et al, 2021 ), and other misconduct. Shleifer and Vishny (1997) proposed the second type of surrogate problem, and then LLSV et al studied these problems from various perspectives.…”

Section: Introductionmentioning

confidence: 99%

The Inhibitory Effect of the Deregulation Short-Sale on Private Equity Placement

Wang

2022

Front. Psychol.

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In countries with a high degree of equity concentration, such as China, the second type of agency problem is serious in which major shareholders of listed companies encroach on the interests of small and medium shareholders through private placement. As a financial transaction system, the short-selling mechanism has the function of external corporate governance. Therefore, this paper examines the impact of relaxing short-selling controls on companies’ private placements. Based on the quasi-natural experiment of China’s gradual relaxation of short-selling controls since 2010, a double-difference model (DID) test is constructed to find that relaxing short-selling controls reduces companies’ private placement tendency and amount, and this effect is mainly reflected in samples with a higher degree of equity checks and balances. Further analysis found that when the size of the company’s financing constraints is different, the impact of relaxing short-selling control on the company’s private placement tendency and amount is different; when the chairman and the general manager have two positions, relaxing short-selling control reduces the company’s private placement options, but it has a negative impact on the company’s private placement. There is no difference in the impact of the company’s private placement amount. It can be excluded that the relaxation of short-selling control suppresses the company’s placement through financing constraints and corporate governance mechanisms. Compared to a good information environment, when the company’s information environment is poor, relaxing short-selling controls reduces the company’s private placement tendency and amount. Significantly, it shows that the relaxation of short-selling control policy and supervision inhibits the company’s private placement through the information environment mechanism, and promotes the sustainable development of enterprises. It not only improves the literature in the field of short-selling mechanism affecting corporate behavior, but it also enriches the research on the transfer of benefits of private placement of companies.

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“…Insider buying (i.e., individual activity) could be an alternative that managers use to support a stock price. 2 Suppose this non-1 Short selling pressures may alternatively induce positive managerial decisions, such as carrying out more beneficial relatedparty transactions (Jiang, Tian, & Zhou, 2021), engaging more on investor relations (Ling, Yan, & Cheng, 2022).…”

Section: Introductionmentioning

confidence: 99%

Whose opinion matters when insiders disagree with short sellers?

Wang

Zheng

2022

Business Fin & Account

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This study investigates the credibility of conflicting trading signals from two well-informed and sophisticated parties: corporate insiders and short sellers. Our results suggest that insiders' information is dominant when short sellers trade in the opposite direction. We attribute the positive price reaction following a disagreement to insiders' superior information that is not available to short sellers. Our results do not support the managerial short-termism argument. Two additional tests show that insider buying credibility enhances when information asymmetry is high and that short sellers reverse their shorting position after the disclosure of insider buying. Both findings support the idea that short sellers may experience a previously unacknowledged barrier in accessing private information.

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

Cited by 18 publications

References 101 publications

Investor relations under short‐selling pressure: Evidence from strategic signaling by company site visits

Investor relations under short‐selling pressure: Evidence from strategic signaling by company site visits

The Inhibitory Effect of the Deregulation Short-Sale on Private Equity Placement

Whose opinion matters when insiders disagree with short sellers?

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