The Impact of China's Short Selling System Regarding The Regulation of Connected Party Dealings of Companies

Zhangxinzhi Cai

doi:10.6981/FEM.202603_7(3).0012

Authors

Zhangxinzhi Cai

DOI:

https://doi.org/10.6981/FEM.202603_7(3).0012

Keywords:

Short Selling System; Related Party Transactions; Double Difference; Intermediary Effect; Corporate Governance.

Abstract

The fairness of connected party dealings is a core issue for the sound functioning of the capital market. Short selling system still needs to be further verified for its constraining effect on related party transactions. This paper selects Chinese A-share listed firms spanning 2010 to 2023 as the research sample, expands margin trading and securities lending system as a quasi natural experiment, and uses a difference in differences (DID) framework to assess the governance effectiveness of the short selling system on listed firms. The research results demonstrate that the short selling mechanism can significantly suppress the scale of unfair related party transactions of listed companies, and this governance effect is more prominent in enterprises with low information transparency and weak corporate governance level; Mechanism testing further confirms that the short selling system mainly achieves effective constraints on unfair related party transactions through two paths: increasing external supervision pressure and reducing agency costs. This article not only augments the the research findings regarding the economic impacts of the short selling mechanism and the regulation of connected party transactions, but also provides experience reference and policy inspiration for regulatory authorities to optimize short selling mechanism design, and regulate trading behavior of listed firms.

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