Does Short Selling Affect Corporate Payout Policy Evidence from China

Abstract

ABSTRACT Using China’s short-selling pilot program as an exogenous shock, we provide evidence that removal of short selling constraint has significantly increased firms’ dividend payout. This positive effect is more pronounced for firms with weak monitoring and firms with more information opacity, suggesting that short selling plays an important governance role in investor protection and information disclosure. This association is robust to a series of robustness checks. Furthermore, we find that firms with active short selling activities are more likely to increase the dividend payout, small firms or big firms both show significant increase in dividends after introduced into pilot list, but the effect is weaker for those engaged in repurchase shares. Overall, this study sheds light on the role of short-selling on firms’ payout policy in the emerging market.