Do Speculators Exacerbate Managerial Myopia? Evidence from Margin Traders in China
Mr. Jun Chen
Ph.D. Candidate in Management (Finance and Accounting)
Rady School of Management
University of California San Diego
This paper exploits a regulatory experiment that lifts the margin trading ban in China to examine the real effects of speculative retail investors. Using a regression discontinuity design, I find that margin trading eligibility causes an increase in share turnover and stock prices, and that marginable firms cater to investor short-termism by manipulating earnings and reducing long-term investment. Consistent with managerial myopia, marginable firms experience a decline in operating profit and equity valuation in the long run. My results suggest that margin traders, as short-term speculators, pressure the manager to focus on current earnings and sacrifice long-term growth.