Short Selling Constraints and Politically Motivated Negative Information Suppression

49 Pages Posted: 18 Jun 2020

See all articles by Xiaohu Deng

Xiaohu Deng

University of Tasmania

Christine X. Jiang

Fudan University

Danqing Young

The Chinese University of Hong Kong (CUHK) - School of Accountancy

Date Written: May 26, 2020

Abstract

This study examines the causal effect of short selling constraints on politically motivated suppression of negative information. We use a unique setting in China, in which there are multiple exogenous changes in short selling constraints and firms have strong incentives to suppress negative information during politically sensitive periods. Results from Difference-in-Differences analyses and a regression discontinuity design show that removing short selling constraints can reduce politically motivated bad news hoarding. In addition, the effect of short selling on reducing bad news hoarding is more pronounced for more politically sensitive events and for firms with lower financial reporting quality.

Keywords: Short selling constraints; negative information suppression; political pressures; information environment

JEL Classification: G14, G15, G18, G38, M40, M48

Suggested Citation

Deng, Xiaohu and Jiang, Christine X. and Young, Danqing Xu, Short Selling Constraints and Politically Motivated Negative Information Suppression (May 26, 2020). Available at SSRN: https://ssrn.com/abstract=3610516 or http://dx.doi.org/10.2139/ssrn.3610516

Xiaohu Deng (Contact Author)

University of Tasmania ( email )

Tasmanian School of Business and Economics
Private bag 84
Hobart, TAS 7001
Australia

Christine X. Jiang

Fudan University ( email )

School of Management
Shanghai, 200433
China
862125011085 (Phone)

Danqing Xu Young

The Chinese University of Hong Kong (CUHK) - School of Accountancy ( email )

Shatin, N.T.
Hong Kong
+852 2609 7892 (Phone)
+852 2603 5114 (Fax)

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