Study of the Impact of Short-selling Mechanisms on Auditor Behaviour

Abstract

The short-selling mechanism, as a significant external governance mechanism in the capital market, exerts a discernible influence on auditor behavior, thereby emerging as a salient and burgeoning area of academic inquiry. This study utilizes a sample of A-share listed companies on the Shanghai and Shenzhen stock exchanges from 2015 to 2023. Empirical tests are performed on panel data from this period, employing benchmark regression and double mediation effect models. The research empirically examines the impact of short-selling intensity on auditor behavior, specifically the audit fee rate and the severity of audit opinions. Furthermore, the study investigates the dual mediating roles of auditor professional competence and risk preference in this relationship. The results indicate that heightened short-selling intensity indirectly elevates audit fees and exacerbates the severity of audit opinions. This effect is mediated by an increased emphasis on auditors' professional competence and risk appetite, compelling firms to incur higher costs and face more stringent audit assessments. This study contributes to the literature on the economic implications of short-selling and the determinants of auditor behavior. Furthermore, it provides empirical evidence that listed companies can leverage to optimize their auditor selection strategies, while also offering valuable insights for regulators to refine the short-selling mechanism and enhance the governance of the audit market.