Can short selling improve internal control? An empirical study based on the difference‐in‐differences model

Based on pilot margin trading in China, this study examines how short selling affects internal control quality in listed firms. Using the difference‐in‐differences approach, we find that compared with control firms, firms that are eligible for short selling significantly improve their internal contr...

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Bibliographic Details
Published in:Accounting and finance (Parkville) 2019-03, Vol.58 (5), p.1233-1259
Main Authors: Chen, Huili, Chen, Ying, Lin, Bin, Wang, Yanchao
Format: Article
Language:English
Subjects:
External auditor
Internal control
Internal controls
Margin trading
Public enterprise
Short sales
Short selling
State ownership
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Summary:Based on pilot margin trading in China, this study examines how short selling affects internal control quality in listed firms. Using the difference‐in‐differences approach, we find that compared with control firms, firms that are eligible for short selling significantly improve their internal control after they are designated as underlying securities. We consider the effects of state ownership and external auditors. The improvement in internal control is only significant for non‐state‐owned firms and firms audited by non‐Big 4 auditors. These findings indicate that short selling can improve firms’ internal control and play a role in their corporate governance.
ISSN:0810-5391
1467-629X
DOI:10.1111/acfi.12456