Spillover effects of short selling on corporate bond financing costs: Evidence from Chinese listed firms

This study examines the impact of short selling on corporate bond financing costs. Using a quasi-natural experiment and panel data from Chinese A-share listed companies from 2007 to 2022, we find that short selling significantly reduces corporate bond financing costs, primarily by mitigating information asymmetry . Further analysis reveals that this effect is particularly pronounced in regions with well-developed financial markets and strong legal environments. Our findings remain robust after controlling for potential confounders and addressing endogeneity through propensity score matched difference-in-differences (PSM-DID) analysis. This study provides a novel perspective on short selling in China, highlighting its cross-market spillover effects between equity and bond markets. • Short-sellable firms in China face lower bond financing costs than non-short-sellable firms. • Firms with greater short-selling potential enjoy even lower bond financing costs. • This effect is driven by reduced information asymmetry. • The effect is stronger in regions with developed financial markets and favorable legal environments.