This study examines the government's incentives to control partially privatized SOEs in share issue privatization in China. In addition to controlling firms in strategic industries, in certain geographical areas, and that have related party transactions, our result shows that government selects and controls firms that have better valuations and employs more workers vis-à-vis comparable private firms. Particularly, local governments, which are more likely to face hard budget constraints, might spend the profits of government controlled firms to hire more workers (Boycko et al., 1996), suggesting that government pursues efficiency and political objectives simultaneously. Our study finds that local governments prefer to control relatively more efficient firms that hire more workers, while central government prefer to controls firms that hire more workers regardless of efficiency. We estimate the impact of government's decision on firm valuations and employment and find a pronounced economic impact to preserve employment and a limited impact to improve efficiency.

In this study, we examine the impact of a market-wide mandatory disclosure policy on short selling on the Tokyo Stock Exchange. We find that average short selling slightly declined while investors’ shorting strategies changed significantly in response to the disclosure. Previously highly shorted stocks were shorted less and shorting activity shifted toward smaller and riskier stocks, suggesting that retail investors became the more likely short sellers. Short sales became more trend-chasing, prices became less informative, and short-term price volatility increased. Overall, the pricing efficiency benefits of short selling declined after the mandatory disclosure policy.