Abstract: Based on the “natural experiment” that China Securities Regulatory Commission (CSRC) relaxed short selling restrictions in 2010，this paper systematically examines the impact of short selling mechanism on tax aggressive behaviors of listed companies in China. The study finds that the short selling mechanism helps to constrain the opportunistic behaviors of management, exert external governance functions to a certain extent, thus effectively reducing company′s tax aggressiveness. Further research shows that, compared with the regions with stronger tax regulations, companies in weaker tax regulations areas face less external supervision, thus have stronger tax avoidance motives. Therefore, the introduction of short selling mechanism has more restraining effect on their tax aggressiveness. Moreover, in companies with lower information transparency, it is difficult for investors to know the true operating conditions of the company, resulting in more space and conditions for companies to conduct tax aggressive behaviors, so the introduction of short selling mechanisms can reduce their tax aggressiveness more.

Key words: short selling mechanism, tax aggressive, tax administration, information transparency