Short Selling, Margin Trading, and Corporate Social Responsibility

Date
2020-08-15
Authors
Liang, Xiao
Chen, Xiaomeng
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Abstract
We examine whether firms use CSR activities to signal information about their future prospects to investors and other stakeholders using the pilot program of short selling and margin trading introduced by the China Securities Regulatory Commission in 2010 as a quasi-natural experiment. This pilot program imposes non-fundamentally driven pressure on the stock prices of the pilot firms. We find that the pilot firms enhance their CSR performance to respond to the exogenous shock of the sudden removal of the short-selling and margin-trading bans. When the effect of short selling on CSR is disentangled from the effect of margin trading on CSR performance, we find that the pilot firms respond to the exogenous shock of short-selling pressure by enhancing their CSR performance but not to the exogenous shock of margin trading. The results suggest that CSR activities can send a positive signal about future prospects to investors and other stakeholders including short sellers.
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Shorting Selling, Margin Trading, Corporate Social Responsibility
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