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Short selling and politically motivated negative information hoarding


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Deng, X, Jiang, C and Young, D , Short selling and politically motivated negative information hoarding.

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Extant literature documents that managers have an incentive to hoard bad news due to political
concerns. In this paper, we test the proposition that short selling has an attenuating effect on the
politically motivated suppression of bad news. We examine the stock price behavior of Chinese
public firms around two highly visible political events - meetings of the National Congress of the
Chinese Communist Party and Two Sessions (The National People’s Congress Conference and
The Chinese People’s Political Consultative Conference) from 2002-2014, and find that political
bad news hoarding has been reduced after short selling becomes available. We establish causality
by relying on a difference-in-differences approach based on a controlled experiment of short
selling regulation changes in China. We also find this reduction in bad news hoarding to be more
pronounced in firms with stronger political connection (higher state ownership and larger size) and
higher accounting opacity, which further confirms our finding. This study sheds new light on the
real effects of short sellers on political impact on capital market.

Item Type: Report (Discussion Paper)
Authors/Creators:Deng, X and Jiang, C and Young, D
Keywords: Short selling; Political force; Negative news hoarding; Information environment
Publisher: University of Tasmania
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