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Short selling and financial reporting quality: Evidence from Chinese AH shares

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  • Jiang, Haiyan
  • Chen, Jun

Abstract

This paper investigates whether the monitoring function of short sale on firms’ financial reporting quality is conditional on the regulatory quality of the markets, and the strength of internal control at firm level. Using data on Chinese cross-listing AH-shares over the period of 2010–2015, we find that short sale restricts accrual earnings management in A-share markets but not in the H-share market. This difference is explained by the relative inferiority of the A-share markets’ regulatory quality, and is accentuated when the cross-listing AH-share firms have weak internal control. Taken together, the results indicate that short-sellers impose strong monitoring on reporting quality when they perceive a great likelihood of managerial expropriation in a weak legal environment, or in firms with weak internal control.

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  • Jiang, Haiyan & Chen, Jun, 2019. "Short selling and financial reporting quality: Evidence from Chinese AH shares," Journal of Contemporary Accounting and Economics, Elsevier, vol. 15(1), pages 118-130.
    • Handle: RePEc:eee:jocaae:v:15:y:2019:i:1:p:118-130
    DOI: 10.1016/j.jcae.2019.01.001
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    Cited by:

    1. Haiyan Jiang & Gary Tian & Donghua Zhou, 2021. "The influence of the deregulation of short‐selling on related‐party transactions: Evidence from China," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 48(5-6), pages 1022-1056, May.
    2. Wenzhen Mai & Nik Intan Norhan Binti Abdul Hamid, 2021. "The Moderating Effect of Family Business Ownership on the Relationship between Short-Selling Mechanism and Firm Value for Listed Companies in China," JRFM, MDPI, vol. 14(6), pages 1-20, May.
    3. Sha, Yezhou & Shah, Syed Ghulam Meran & Sarfraz, Muddassar, 2023. "Short selling and SME irregular CEO succession: Witnessing the moderating role of earnings management," International Review of Economics & Finance, Elsevier, vol. 85(C), pages 163-173.
    4. GuoHua Cao & WenJun Geng & Jing Zhang & Qi Li, 2023. "Financial constraints, short selling and corporate fraud: Evidence from China," Australian Economic Papers, Wiley Blackwell, vol. 62(2), pages 297-320, June.

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    More about this item

    Keywords

    Short selling; Financial reporting quality; Cross listing;
    All these keywords.

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • M00 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - General - - - General
    • M40 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - General

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