<p>The effect of short selling mechanism is remained to be discussed as the conjecture regulators regard it as the cause of stock crash, while numerous previous studies have shown the external corporate governance effect of short selling which could supervise and monitor the behaviors of managements by reducing information asymmetries and agency costs. By reviewing the precious researches on the short selling, the findings of this study are that besides short selling could improve the informativeness of stock pricing, it also acts as external corporate governor and innovation motivator to develop the overall value and innovation performance of firms. </p>