Abstract
The aim of this study is to examine the effect of short-selling deregulation on the financial performance of SMEs in China. The external governance role of short-selling is also tested by adopting corporate social responsibility (CSR) performance as the mediating effect. This study investigates a panel data analysis with a sample of 5038 firm-years of SMEs listed in Shenzhen Stock Exchange from 2010 to 2019. The PSM-DID method is adopted in this study to alleviate self-selection and endogenous problems to observe the comparable pure effect of short-selling deregulation, while the mediation test is conducted based on Baron and Kenny’s model. The finding of this study showed that the existence of short-selling could enhance firm financial performance and the mediating effect of CSR performance position in their relationship. In addition, the further analysis revealed that the mediating effect of CSR is more pronounced for family businesses and firms with high real short-selling threats. The robust test of alternative measurements is conducted and valid. This study provides insights for policymakers to consider further short-selling ban lifting and corporate executives to practice more CSR activities to improve the financial performance. Limitations and further implications of this study are also discussed.
Highlights
The short-selling mechanism has been available in developed markets for many years for pessimistic investors to profit from stock price declines, China’s financial regulators only began loosening their short-selling restrictions in March 2010
This paper examines the effect of short-selling deregulation on the firm financial performance of listed small and medium enterprises (SMEs) in China from 2010 to 2019
By adopting the propensity score matching (PSM)-DID method, we find that short-selling ban lifting improves firm financial performance significantly in both Tobin’s Q and return on assets (ROA)
Summary
The short-selling mechanism has been available in developed markets for many years for pessimistic investors to profit from stock price declines, China’s financial regulators only began loosening their short-selling restrictions in March 2010. This transformative reform of the capital market brought about a breakthrough in China’s A-share market, ending the over 20-year history of its buy-only trading market. As such, assessing the economic implications of short-selling is important in financial analysis. There are few scholars have drawn attention to the relationship between short-selling and the financial performance of the organization
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