Short Selling Constraints and Politically Motivated Negative Information Suppression
49 Pages Posted: 18 Jun 2020
Date Written: May 26, 2020
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
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