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Short selling and corporate diversification in emerging markets: Insights from controlling shareholder tunneling

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  • Jiang, Jiaoliang

Abstract

Employing the staggered removal of short selling restrictions as a series of quasi-exogenous shocks and using a difference-in-differences (DiD) research design, we examine the causal effect of short selling on corporate diversification in the context of China. We find that short selling has a negative effect on firms' diversification. The channel tests reveal that short selling disciplines controlling shareholders' tunneling and consequently reduces firms' diversification. Further analyses shows that the negative effect is more pronounced for non-SOEs, for firms with lower institutional holdings and during times of industry distress. Finally, we also rule out alternative explanations that may drive our main findings. Our study provides new insights into how short selling shapes corporate diversification in emerging markets.

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  • Jiang, Jiaoliang, 2022. "Short selling and corporate diversification in emerging markets: Insights from controlling shareholder tunneling," Pacific-Basin Finance Journal, Elsevier, vol. 75(C).
    • Handle: RePEc:eee:pacfin:v:75:y:2022:i:c:s0927538x22001342
    DOI: 10.1016/j.pacfin.2022.101839
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    More about this item

    Keywords

    Short selling; Corporate diversification; Tunneling; Controlling shareholder;
    All these keywords.

    JEL classification:

    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law

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