Does short selling affect a firm's financial constraints?

Meng, Qingbin; Li, Xinyu; Chan, Kam C.; Gao, Shenghao

doi:10.1016/j.jcorpfin.2019.101531

Cited by 78 publications

(60 citation statements)

References 89 publications

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“… Cai, McGuinness, and Zhang (2011) found that weakening informational asymmetries underlie much of the change in the markets' relative pricing, where policy and corporate governance change appears to be the principal force driving the efficiency gains, while Meng, Li, Chan, and Gao (2020) identified, through the use of A-share data, the presence of a negative information effect from short-selling restrictions. Xianghai (1996) identified cross-sectional differences between the prices of both A- and B-shares, with evidence suggesting the presence of a correlation with investors' attitudes towards risk.…”

Section: Previous Literaturementioning

confidence: 99%

The influence of the COVID-19 pandemic on asset-price discovery: Testing the case of Chinese informational asymmetry

Corbet

Hou

et al. 2020

International Review of Financial Analysis

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The circumstances surrounding the outbreak of the COVID-19 pandemic have generated substantial international political strain as governments attempt to mitigate the widespread associated social and economic repercussions. One theory has focused on the potential for Chinese informational asymmetry. Using Chinese financial market data, we attempt to establish the scale and direction of information flows during multiple distinct phases of the development of the pandemic. Two specific results are identified. Firstly, the majority of domestically-traded Chinese stocks present evidence of significant information flows at a far earlier stage than internationally-traded comparatives, suggesting that domestic investors recognised the dangers associated with COVID-19 far in advance of the rest of the world. One potential explanation surrounds the view that the severity of domestically-reported Chinese news was not appropriately recognised by international investors. Secondly, while evidence of safe-haven and flight-to-safety behaviour is evident throughout traditional energy and precious metal markets, cryptocurrencies became informationally-synchronised with Chinese equity markets, indicating their use as an investor safe-haven. This is a particularly concerning outcome for international policy-maker and regulatory authorities due to the fragility of these developing markets.

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Section: Previous Literaturementioning

confidence: 99%

The influence of the COVID-19 pandemic on asset-price discovery: Testing the case of Chinese informational asymmetry

Corbet

Hou

et al. 2020

International Review of Financial Analysis

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Section: Related Issuesmentioning

confidence: 99%

“…Relatedly, although SOEs have easier access to credit resources, they are less efficient than non-SOEs and ex ante more likely to have negative information waiting to be uncovered by short sellers (Meng et al, 2020). Indeed, Meng et al (2020) show that the adverse impact of short sales on financial constraints is more pronounced for SOEs, especially those with poor performance, suggesting that short selling can inhibit the inherent financing advantage of inefficient SOEs. Additionally, given that the social security system of China is still immature, SOEs in China often undertake various policy burdens, such as retaining redundant workers and being responsible for their employees' welfare (Kong et al, 2018).…”

Section: Related Issuesmentioning

confidence: 99%

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Short selling and labor investment efficiency: evidence from the Chinese stock market

Ding

2020

Accounting & Finance

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Exploring the staggered short sale deregulation on the Chinese stock market as quasi-exogenous shocks, we find that the introduction of short selling is associated with higher deviations of labor investment from the level justified by economic fundamentals, i.e., lower labor investment efficiency. The main effect is more pronounced for firms that are more opaque, younger, and worse governed. Further evidence indicates that short sale deregulation mainly induces firms to overinvest in labor. Our overall findings suggest that faced with downward price pressures, firms may overinvest in labor to convey favorable information to stakeholders, resulting in less efficient labor investments.

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“…Mei, Scheinkman, and Xiong (2009) found that trading caused by investors' speculative motives can help explain a significant fraction of the price difference between Chinese dual-class shares, while Chan et al (2007) identified evidence of shifting informational patterns due to regulatory changes in February 2001, however A-shares continued to dominate the price discovery process. Cai, McGuinness, and Zhang (2011) found that weakening informational asymmetries underlie much of the change in the markets' relative pricing, where policy and corporate governance change appears to be the principal force driving the efficiency gains, while Meng, Li, Chan, and Gao (2020) identified, through the use of A-share data, the presence of a negative information effect from short-selling restrictions. Xianghai (1996) identified cross-sectional differences between the prices of both A-and B-shares, with evidence suggesting the presence of a correlation with investors' attitudes towards risk.…”

Section: Previous Literaturementioning

confidence: 99%

The Influence of the COVID-19 Pandemic on Asset-Price Discovery: Testing the Case of Chinese Informational Asymmetry

Corbet

Hou

et al. 2020

SSRN Journal

View full text Add to dashboard Cite

The circumstances surrounding the outbreak of the COVID-19 pandemic have generated substantial international political strain as governments attempt to mitigate the widespread associated social and economic repercussions. One theory has focused on the potential for Chinese informational asymmetry. Using Chinese financial market data, we attempt to establish the scale and direction of information flows during multiple distinct phases of the development of the pandemic. Two specific results are identified. Firstly, the majority of domestically-traded Chinese stocks present evidence of significant information flows at a far earlier stage than internationally-traded comparatives, suggesting that domestic investors recognised the dangers associated with COVID-19 far in advance of the rest of the world. One potential explanation surrounds the view that the severity of domestically-reported Chinese news was not appropriately recognised by international investors. Secondly, while evidence of safe-haven and flight-to-safety behaviour is evident throughout traditional energy and precious metal markets, cryptocurrencies became informationally-synchronised with Chinese equity markets, indicating their use as an investor safe-haven. This is a particularly concerning outcome for international policymaker and regulatory authorities due to the fragility of these developing markets.

show abstract

Does short selling affect a firm's financial constraints?

Cited by 78 publications

References 89 publications

The influence of the COVID-19 pandemic on asset-price discovery: Testing the case of Chinese informational asymmetry

The influence of the COVID-19 pandemic on asset-price discovery: Testing the case of Chinese informational asymmetry

Short selling and labor investment efficiency: evidence from the Chinese stock market

The Influence of the COVID-19 Pandemic on Asset-Price Discovery: Testing the Case of Chinese Informational Asymmetry

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