Does the Short-Selling Mechanism Enhance Corporate ESG Performance?

Yatong Lu

doi:10.6981/FEM.202608_7(8).0019

Authors

Yatong Lu Business College, Harbin University of Commerce, Harbin, Heilongjiang, 150028, China

DOI:

https://doi.org/10.6981/FEM.202608_7(8).0019

Keywords:

Short-Selling Mechanism; ESG Performance; Internal Governance; Information Asymmetry.

Abstract

Using the data of Chinese A-share listed companies from 2010-2024, we use the model of " Margin Trading and Securities Lending" as an experimental model. The adoption of the Staggered Difference-in-Differences (DID) model is used to investigate the effect of short selling on ESG performance and their basic channels. These results show that short sales can greatly enhance ESG performance. This finding is still reliable following a series of robust controls, such as concurrent trend trials, excluding COVID-19 epidemics, omitting companies located in municipalities directly under the central government, estimates of PSM-DID and placebos. Based on the mechanism, it is found that short sales can increase ESG's performance by two main ways, namely, improvement of inner management and reduction of asymmetric information. The heterogeneous analysis also shows that short sales have a greater impact on ESG results in SOEs, smaller companies and more competitive sectors. The research has provided a new demonstration of how capital market monitoring mechanisms can enhance corporate sustainability, and has also offered useful insights into how to improve the design of margin trading and securities lending regimes and apply differentiated regulatory policies.

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