The Relationship Between Short Selling Mechanisms and Corporate Audit Fees

Against the backdrop of China's introduction of the margin trading system in 2010, this paper delves into the impact of short-selling mechanisms on corporate audit fees and their underlying mechanisms. Utilising annual data from non-financial listed companies in China's A-share market between 2007 and 2022, empirical analysis is conducted using a two-way fixed-effects panel model. Findings reveal that the implementation of short-selling mechanisms significantly reduces corporate audit fees, a conclusion that remains robust after controlling for year and industry fixed effects. The research indicates that short-selling mechanisms may lower auditors' audit risks and operational costs by enhancing corporate governance standards, improving disclosure transparency, and refining the market information environment, thereby leading to decreased audit fees. This study challenges the prevailing expectation that short selling increases audit costs, offering a fresh perspective on understanding the economic consequences of short-selling mechanisms. It provides insights for regulators to refine short-selling systems, listed companies to optimise governance practices, and the auditing industry to assess risk pricing.