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Short selling and de-zombification: Evidence from China

Author

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  • Tan, Ruipeng
  • Zhu, Wenjun
  • Pan, Lulu
  • Wu, Huaqing

Abstract

We use China's listed firms from 2007 to 2020 as a sample to examine the impact of short selling on firm de-zombification. Results from difference-in-differences analyses show that the exposure to short selling risk impedes the process of de-zombification. The introduction of the short selling hinders de-zombification by leading the firm more dependent on government subsidies. Further analysis shows that the short selling's negative effect on de-zombification mainly comes from politically connected firms, manufacturing firms and larger-scale firms, as they have more access to more government subsidies. Our findings underscore the unintended consequences of short selling in the context of China's capital market and provide valuable insights for the policymakers.

Suggested Citation

  • Tan, Ruipeng & Zhu, Wenjun & Pan, Lulu & Wu, Huaqing, 2024. "Short selling and de-zombification: Evidence from China," International Review of Economics & Finance, Elsevier, vol. 93(PB), pages 86-102.
    • Handle: RePEc:eee:reveco:v:93:y:2024:i:pb:p:86-102
    DOI: 10.1016/j.iref.2024.04.012
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