Does Margin-trading Improve Investment Efficiency?

China launched a pilot scheme in March 2010 to lift the ban on short-selling and margin-trading for stocks on a designated list. After 5 times revising, at the end of 2015, there are 914 stocks on the list. This paper explores the discipline effect of short selling on investment efficiency. Employing data from 2007-2014, we find the investment efficiency increased after the ban is lifted, especially in overinvestment scenario. The effect is concentrated in the firms with higher managers’ wealth-performance sensitivity and state-owned enterprise.For companies with low supervisory mechanism,only in firms with higher managers’ wealth-performance sensitivity or state-owned can margin trading discipline investment efficiency.These results indicate that margin trading plays a role in corporate governance,and its effects depend on the managers’ wealth-performance sensitivity、enterprise property and supervisory mechanism...