Study of the Impact of the Short-Selling Mechanism on Audit Fees

Abstract

In recent years, the short-selling mechanism has had an important influence on corporate financing, corporate governance, and audit behavior. Utilizing the 2010 launch of China's margin trading and short-selling pilot as a quasi-natural experiment, a staggered difference-in-differences (DID) framework was utilized to investigate a cohort of A-share non-financial firms spanning 2009 to 2021. Our findings indicate that audit costs tend to be elevated within short-selling frameworks; this mainly stems from heightened audit risks and a broader scope of professional duties. In supplementary heterogeneity examinations, it was observed that the amplifying effect on expenditures is more significant for non-state-owned firms, organizations with a reduced degree of accounting conservatism, and those reviewed by non-Big Four auditing firms. The aforementioned outcomes provide theoretical foundations for optimizing the securities lending architecture and reinforce audit risk evaluations.