Xue Xintong

Xiamen University Tan Kah Kee College

Abstract：

The high-quality development of capital markets requires enhancing resource allocation efficiency while mitigating risks of abnormal stock price fluctuations. As a key trading mechanism, the short-selling system's ability to curb corporate stock price crash risks remains controversial. Building on relevant domestic and international research, this paper reviews and synthesizes the economic consequences of the short-selling system, factors influencing stock price crash risks, and their interrelationships, while identifying the underlying mechanisms across three dimensions: information efficiency, corporate governance, and market sentiment. The study concludes that under conditions of adequate information disclosure, effective governance structures, and robust regulatory frameworks, the short-selling system can reduce crash risks caused by the accumulation of negative news through price discovery and external supervision. However, in scenarios of fragile market sentiment or inadequate regulation, it may exacerbate price volatility. These findings provide insights for improving margin trading and securities lending mechanisms as well as enhancing capital market risk governance.

Key Words：

short-selling mechanism; stock price crash risk; information efficiency; corporate governance; market sentiment