Short Selling,Investor Sentiment And Corporate Investment Behavior

On March 31st,2010,China officially launched the securities margin transaction system,companies only included in the list of shares of margin trading are qualified for financing transaction or securities lending transactions.In short,financing is borrowing money to buy securities while securities lending is borrowing securities to sell,upon expiration of the contract,traders need to return the same amout of funds or securities and pay a certain interest expenses.After five major adjustments and a number of minor adjustments,as of February 28th,2017,the number of shares in the list has been increased from 90 to 949.The introduction of margin trading marks the introduction of short selling mechanism in China's stock market.Foreign studies have found that short selling mechanism can effectively constrain managerial behavior,with a certain role in corporate governance.The time of short selling deregulation in China is short,and still in the pilot phase now,not fully liberalized;Different from the mature foreign securities market,as a transition economy and emerging economies,China's capital market is imperfect,can short selling mechanism play its external governance role to restrain the manager's self-serving behavior here?From the perspective of financial information quality,foreign literature have found the role of short selling mechanism on corporate governance.However,the investment decision-making will be front-and-center in the three major financial decision-making,which is essential for the survival and development of enterprises,for taking responsibility for "hematopoiesis".So this paper studies the external governance effect of the margin trading system from the perspective of enterprise investment to provide a new inspection mechanism of the value effect of the short selling system.On the other hand,researchers have found that investor sentiment affects the efficiency of resource allocation mainly by influencing the agency conflict between shareholders and management or financing constraint.As most Chinese investors are individual investors who lack of energy,knowledge and skills,retail trade occupies a great proportion.Therefore,based on the particularity of China's securities market,this paper puts investor sentiment,short selling mechanism and enterprise investment behavior into the same analysis frame,and explores whether investor sentiment has played a regulatory role in the process of short selling mechanism affect enterprise investment.After gathering the correlative literature at home and abroad,on the basis of psychological account theory,information asymmetry theory,principal-agent theory and catering theory,This paper analyzes the impact of China's margin trading system on the investment decision of listed companies and the possible regulation effect of investor sentiment.By using the data of Shanghai and Shenzhen A shares from 2010 to 2016,this paper uses the double differential model to test the impact of short selling mechanism on the investment behavior of enterprises,and draws the following conclusions:(1)The total investment and inefficient investment of companies included in the list of shares of margin trading has been significantly inhibited;(2)Investors are more cautious in investing in short selling stocks than non-selling stocks,and the collective irrationality of investors will be lower,thereby reducing the size of accessible cheap equity financing and then reducing the the overall investment.Meanwhile it would encourage enterprises to be more cautious when making investment decisions,so enhance companies' efficiency of investment.Namely,investor sentiment will positively regulate the role of short selling mechanism on corporate investment;(3)To further consider the impact of financing constraints,for corporate investment is mainly subject to financing constraints,the research found that the impact of short selling is more significant in the high financing constraints group;(4)Due to the soft budget constraint and the policy burden of state-owned enterprises,the research shows that the effect of short selling on enterprise investment is more significant in state-owned enterprises;(5)In order to eliminate the impact of the financing business on the investment behavior of enterprises,we use data of financing trade and short selling trade to make regression respectively and find that the improvement of the investment behavior which comes from margin trading system is mainly caused by the short selling transaction,which supports the conclusion of this article.Finally,based on the theoretical and empirical results of this paper,we put forward the conclusions and corresponding policy suggestions,and also state the shortcomings and future directions of this paper.