Short selling mechanism and financial fraud——Analysis based on the perspective of earnings management

Abstract

This study focuses on the influence of the short-selling mechanism (SEM) on earnings management behavior of listed companies, particularly the change in the earnings management (EM) level of listed companies after the implementation of the margin financing (MF) policy. The research is based on data from China’s securities market spanning from 2007 to 2022, and employs the difference-in-differences (DID) model for empirical analysis. The study found that the EM behavior of companies that became subject to both MF and short selling decreased significantly after the implementation of the SEM. The results indicate that the SEM, as a market supervision tool, effectively curtails opportunistic behavior by management and enhances the transparency and quality of accounting information. This study offers a new perspective on the role of SEM in corporate governance and market supervision, and provides a foundation for relevant policy formulation.