Principles and Economic Consequences Analysis of Short-Selling Mechanisms for Listed Companies from the Perspective of Information Disclosure: A Case Study of Luckin Coffee

Abstract

This paper, using Luckin Coffee as a practical case study, explores the principles and economic consequences of short-selling mechanisms for listed companies from the perspective of information disclosure. Short selling represents investors predicting a downward trend in stock prices, borrowing stocks before selling them when prices fall, and profiting from the price difference. The short-selling mechanism diversifies the entire market and serves as a self-cleansing process in the trading market. It efficiently exposes illegal activities and regulatory violations of listed companies to heightened market scrutiny through various means, effectively curbing such misconduct. It also allows investors to express pessimism about specific markets and stocks while profiting from it. However, the short-selling mechanism also introduces potential issues. In a market like China, which has a relatively short stock market history, incomplete legal systems, imperfect regulations, and information asymmetry, excessive short-selling pressure can lead to speculation, market volatility, excessive stock price declines, and impacts on corporate valuations. Therefore, the short-selling mechanism is a double-edged sword for listed companies, beneficial for market development, but also posing various potential threats. Adequate information disclosure is indispensable for market supervision to ensure positive market growth and stability.