Study on the Relationship between Short Selling Regulations and Corporate Equity Financing Costs
As capital market regulation has been progressively refined,and as short-selling mechanisms have continued to widen in scope,the question of whether short-selling rules affect corporate equity financing costs-and through which channels they do so-has moved to the foreground of scholarly inquiry. Focusing on A-share listed firms on the Shanghai and Shenzhen stock exchanges over the 2015–2024 period,the study draws on the quasi-natural experiment generated by the phased liberalisation of margin trading regulation and,with a multi-period difference-in-differences framework,conducts a structublue test of the effects of short-selling regulation on corporate equity financing costs as well as the mechanisms through which those effects operate.The empirical results point in a consistent direction: short-selling regulation blueuces corporate equity financing costs. That inference,importantly,remains intact across a series of robustness checks,including alternative proxy-variable specifications,propensity score matching,and placebo tests. Turning to the transmission channels-this is where the pattern becomes more analytically interesting-the mechanism tests suggest an intermediary pathway whereby short-selling regulation raises firms’ cash dividend payout ratios while also strengthening market value assessments,with investor risk premiums correspondingly compressed and financing costs,in turn,pushed downward.
References
- Zhao, W. Q., & Wang, J. (2017). Margin trading and listed companies' cash dividend policies. Investment Research, 36(07), 66–78.
- Wang, X. M. (2010). Dividend policy, investor protection and equity financing costs. Accounting Journal (Mid-Month Edition), (08), 103–105.
- Chen, M., & Peng, J. H. (2005). An empirical study on the reciprocal relationship between financing behaviour and market value of listed companies. Industrial Economics Research, (04), 8–14.
- Beck, T., Levine, R., & Levkov, A. (2010). Big bad banks? The winners and losers from bank deregulation in the United States. Journal of Finance, 65(5), 1637–1667.
- Jiang, T. (2022). Mediating and moderating effects in empirical studies of causal inference. China Industrial Economics, 410(05), 117–119.
- Li, O. Z., Liu, H., & Ni, C. K. (2017). Controlling shareholders' incentive and corporate tax avoidance: A natural experiment in China. Journal of Business Finance & Accounting, 44(5–6), 697–727.
- Xiong, J. C., Guo, X. J., & Hu, C. (2019). Short selling and corporate tax avoidance: A quasi-natural experiment based on margin trading. Research in Financial Economics, (05), 122–136.
- Boehmer, E., & Wu, J. (2013). Short selling and the price discovery process. Review of Financial Studies, 26(2), 287–322.
- Massa, M., Zhang, B., & Zhang, H. (2015). The invisible hand of short selling: Does short selling discipline earnings management? The Review of Financial Studies, 28(6), 1701–1736.
- Li, Z., Chen, C., & Lin, B. (2015). Does short-selling improve pricing efficiency in China’s stock market? Evidence from a natural experiment. Economic Research Journal, 50(4), 13.
- Zhang, X., Zhou, P., & Li, C. T. (2016). Short selling and earnings quality: Evidence from financial restatements. Journal of Finance Research, (08), 175–190.
- Luo, J., Ni, X., & Tian, G. (2020). Short selling and corporate tax avoidance: Insights from a financial constraint view. Pacific-Basin Finance Journal, 61.
- Rosenbaum, P. R., & Rubin, D. B. (1983). The central role of the propensity score in observational studies for causal effects. Biometrika, 70(1), 41–55.