Research On The Relationship Between Short Selling Mechanism And Readability Of Annual Report

As an important carrier of mandatory disclosure,the content of the annual report can be divided into two categories: digital information and text information.Digital information directly reflects the financial status and operating results of enterprises,while text information is aimed to explain the digital information in detail.The two categories of information together reflect the value of enterprises and provide guidance for investors to make decisions.In recent years,with the continuous increase of the proportion of text information in the annual report information disclosure,the importance of text information is self-evident.And with the continuous maturity of text analysis technology,the phenomenon of different readability of the annual report in different situations,as well as the hidden strategic disclosure behavior,have become a problem worthy of attention.The text information of the annual report are high flexible and weak supervised,which make it easier to be a tool for managers’ impression management.With the continuous development of capital market,short selling mechanism,as an important innovative financial transaction system,can significantly affects the efficiency of capital market and corporate behavior.On the one hand,based on the“constraint view” of short selling,the introduction of short selling mechanism increases the punishment of managers’ opportunistic behaviors,the effectiveness of incentive contracts,and the efficiency of information transmission,thus reduces information asymmetry,alleviates principal-agent conflicts,forms a good governance effect on managers’ opportunistic behaviors,improves the readability level of annual report.On the other hand,based on the “pressure view” of short selling,the introduction of short selling mechanism brings great short-term pressure to the stock price,strengthens the managers’ shortsightedness and short-term opportunistic behaviors,which makes the managers have motivation to carry out impression management and reduce the readability level of the annual report.So,how does theintroduction of short selling affect the readability of annual report?Therefore,based on the impression management theory,signaling theory,principal-agent theory and information asymmetry theory,this paper proposes a pair of competitive hypotheses based on the “constraint view” of short selling and“pressure view” of short selling respectively,and selects the annual report disclosed by all A-share listed companies in Shanghai and Shenzhen Stock Markets in2007-2018 as the research sample,which is based on the event of China’s deregulation of short selling in March 2010.This paper uses the double difference(DID)model to test the influence of short selling mechanism on the readability of annual report,and the heterogeneity of the relationship between short selling and readability under different property rights and different short selling pressure intensity,and further analyzes the regulatory mechanism of different internal interest factors and external governance factors.The empirical results show that:(1)the downward pressure of short-term stock price caused by short selling mechanism aggravates the managers’ opportunistic behaviors,and reduces the readability level of the annual report.This conclusion supports the “pressure view” rather than the “constraint view” of short selling.This conclusion is still valid after PSM test,excluding some samples,substitution variable test and research model substitution test.Moreover,in the state-owned enterprises with poor information disclosure environment and the samples with strong short selling pressure,this impression management behavior is more obvious.(2)From the perspective of the driving factors of the internal interest factor,financing constraints plays a positive role in regulating the relationship between short selling and readability,making the managers to be more inclined to use complex and difficult language to blur negative information in the annual report.(3)From the perspective of the restraining factors of the external governance factor,audit quality plays a negative role in regulating the relationship between short selling and readability,and inhibit themanagers’ impression management behaviors of using complex and difficult language to blur negative information in the annual report.As the current capital market in China is a weak efficient market,with high degree of information asymmetry and serious principal-agent problems,impression management behavior in enterprise information disclosure is widespread,which makes short sellers not have a good information environment for mining negative information.This paper explores the influencing factors of enterprise text readability manipulation from the new perspective of short selling mechanism,expands the research ideas in the field of information disclosure impression management,and has certain theoretical and practical significance for improving the evaluation and supervision mechanism of corporate information disclosure.