Margin trading and short selling and firms' digital technology innovation -- empirical evidence based on a quasi-natural experiment

Abstract

In recent years, China's digital economy has developed rapidly. As an important institutional design of the capital market, margin trading and short selling has an important impact on the digital technology innovation of firms in the new era. This paper selects Chinese A-share listed firms from 2008 to 2020 as a sample and applies a double difference model to analyze the impact of margin trading and short selling on digital technology innovation. The study shows that margin trading and short selling has a significant positive impact on digital technology innovation, and this finding still holds after a series of robustness tests. This effect is more pronounced in firms with a low proportion of sole directors, a low number of analysts to follow and a high degree of separation of powers. The mechanistic analysis suggests that the margin trading and short selling can contribute to the development of digital technology innovation in firms through two transmission paths: suppressing analyst disagreement and reducing share price synchronization. The findings of this paper not only enrich the literature in the field of margin trading and short selling and digital technology innovation, but also provide new ideas and paradigms for regulating the development of margin trading and short selling and guiding firms to improve their innovation efficiency.