Abstract:
Short selling system implemented in 2010 is an important institutional innovation in Chinese capital market. This paper studies this arrangement's spillover effect from perspective of banks by using DID design. We find that the implementation of short selling system motivates banks to provide loans with higher amounts, longer maturities and lower likelihood of being secured. Further analysis indicates that the above relations are more significant when banks are concerned about borrowers' information risk and credit risk or borrowers' information risk and credit risk is high. And banks' performance significantly increases after their borrowers' stocks are in the list of the program. The above findings mean that short selling has spillover effect on banks' loan decision. In other words, short selling reduces borrowers' credit risk and information risk and banks also correspondingly make appropriate adjustment to their loan decision.
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