Short Selling and Information Quality: Evidence from Natural Experiments in an Emerging Market

Using a comprehensive sample of Chinese-listed firms and the generalized difference-in-differences (DID) approach, we find that information quality significantly improves after an exogenous removal of short selling ban. Treated firms engage less in accruals management and experience fewer restatements. Auditors exert more effort and spend more time in auditing financial statements. We further demonstrate that the improvement of information quality is driven by increased investor attention and media coverage of the treated firms. The results are more pronounced in firms with lower institutional ownership and in non-state-owned firms.