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Study on the Impact of Short Selling Mechanism on ESG Scores of Listed Companies in China

Author(s)

Yanan Wang

Affiliation(s)

School of Accounting, Tianjin University of Commerce, Tianjin, China

Abstract

Amidst the escalating importance of sustainable development and socially conscious investment strategies, environmental, social, and corporate governance (ESG) scores have emerged as pivotal metrics for evaluating corporate social responsibility and sustainability performance. These indicators carry substantial weight in shaping investment decisions, reflecting a transformative shift towards integrating ethical and environmental considerations into financial decision-making processes. Nevertheless, little research has been done on the impact of short-selling mechanisms, a key aspect of capital markets, on ESG scores of listed companies. In this research endeavor, leveraging empirical data sourced from Chinese A-share listed entities, we meticulously explored the intricate mechanism of short selling's impact on Environmental, Social, and Governance (ESG) scores, employing the sophisticated Heckman two-stage model to account for potential selection biases and uncover nuanced relationships within the financial and sustainability landscape. The results show that the implementation of short-selling mechanism significantly improves the ESG scores of listed companies, especially in the realm of corporate governance. This highlights the positive role of short selling mechanisms in bolstering listed companies to meet their social responsibilities and promote sustainable development. It provides new insights and strategies for investors, regulators and corporate managers to use short-selling mechanisms. In addition, it elucidated how such mechanisms can contribute to enhancing the environmental protection, social accountability, and corporate governance efficacy of listed entities. The robustness of these results is verified by fixed effect model, multivariate logistic regression and instrument variables, which ensures the scientific and accuracy of empirical analysis.

Keywords

ESG Scores; Short Selling Mechanism Listed Companies; Sustainability

References

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