Can the Short-selling Mechanism Enhance Corporate Information Transparency?

Abstract

Information transparency serves as the foundation for the healthy operation of capital markets and a critical determinant of resource allocation efficiency and investor protection. This study employs China's formal implementation of the securities lending and borrowing system in 2013 as a quasi-natural experiment, utilizing data from A-share non-financial listed companies between 2012 and 2023. Through a multi-period difference-in-differences (DID) model, we examine the impact, mechanism, and heterogeneity characteristics of relaxed short-selling restrictions on corporate information transparency. The findings indicate that the securities lending system curbs both accrued and real earnings management practices among target firms, thereby enhancing corporate information transparency. These conclusions remain robust after rigorous tests including parallel trends, placebo effects, PSM-DID analysis, variable substitution, and sample period adjustments. Mechanism analysis reveals that increased stock price information content and reduced agency costs constitute the primary transmission pathways for the governance effects of the short-selling regime, with analyst oversight playing a supplementary mediating role. Heterogeneity tests demonstrate that the information governance effects of the short-selling system are more pronounced in firms with weaker internal governance, lower product market competition, and poorer regional legal frameworks, while external governance mechanisms serve to compensate for internal governance deficiencies. The study provides theoretical foundations and policy recommendations for refining China's securities lending and borrowing mechanisms and improving corporate information disclosure quality.