Study on the Relationship between Short Selling Regulations and Corporate Equity Financing Costs

Abstract

As capital market regulation has been progressively refined,and as short-selling mechanisms have continued to widen in scope,the question of whether short-selling rules affect corporate equity financing costs-and through which channels they do so-has moved to the foreground of scholarly inquiry. Focusing on A-share listed firms on the Shanghai and Shenzhen stock exchanges over the 2015–2024 period,the study draws on the quasi-natural experiment generated by the phased liberalisation of margin trading regulation and,with a multi-period difference-in-differences framework,conducts a structublue test of the effects of short-selling regulation on corporate equity financing costs as well as the mechanisms through which those effects operate.The empirical results point in a consistent direction: short-selling regulation blueuces corporate equity financing costs. That inference,importantly,remains intact across a series of robustness checks,including alternative proxy-variable specifications,propensity score matching,and placebo tests. Turning to the transmission channels-this is where the pattern becomes more analytically interesting-the mechanism tests suggest an intermediary pathway whereby short-selling regulation raises firms’ cash dividend payout ratios while also strengthening market value assessments,with investor risk premiums correspondingly compressed and financing costs,in turn,pushed downward.