Abstract: The impact of China’s dominant special ownership structure on the governance effect of short selling cannot be ignored. Taking the implementation of margin trading and short selling system as a quasi-natural experiment, and based on corporate investment behavior, in this paper, Difference-in-Difference method was used to examine the impact of controlling shareholders on governance effect of short selling in China. Furthermore, the impact of the internal ownership governance mechanism (such as balanced ownership structure, institutional investors and individual investors) on the governance effect of short selling under the existence of controlling shareholders was also investigated. The results show that, compared with firms without controlling shareholders, firms with controlling shareholders had a greater decrease in investment expenditure or overinvestment after the introduction of short selling mechanism, which is consistent with the expectations of ‘short-selling pressure hypothesis’ proposed by this paper. Moreover, the higher control degree of the controlling shareholder, the greater governance effect of short selling. After a series of endogeneity and robustness tests, the conclusions still hold. Further research shows that, the above governance effect of short selling was strengthened in firms with weaker balanced ownership structure, higher institutional investors shareholdings or mainly owned by stable institutional investors and lower individual investors shareholdings. The conclusion shows that the special ownership structure of controlling shareholders in China effectively promotes the governance effect of short selling.