Research On The Effects Of Short Selling On Book-Tax Differences

Book-tax differences(BTD),in addition to reflecting the differences and conflicts of interests between different users of accounting information(company stakeholders and governments),may also capture earnings management and/or tax management.Using the samples of Chinese listed companies from 2008 to 2015,we investigate the interactive relationship between short selling and BTD based on the pilot margin trading in China.We find that companies with high BTD are shorted more strongly by short sellers.the companies that are eligible for margin trading significantly reduce their BTD level after being designated as the underlying securities.Further research finds that the effect short-sale mechanism puts on BTD is concentrated in regions with higher degree of marketization.We further find that the effect is more pronounced for firms with weaker audit quality or corporate governance.These results indicate that margin trading plays a role in corporate governance,and its effects depend on the improvement in external market environment.In the absence of other internal and external corporate governance systems,the short selling mechanism can fill in time.The conclusions of this study have certain implications for investors,companies,and securities regulatory authorities.