A world with only long-only funds would have less efficient markets (in terms of liquidity and price discovery)
If the only way to be compensated was by finding good news then all research would be focused on that. If you can be compensated for finding bad news (by shorting then disclosing the information) then there is an incentive to look for bad news (beyond DD on your existing longs).
Here’s are summary article on hedge funds, on P25 it looks at short selling and price discovery and it cites a couple of papers that investigated the effects of historic bans on short selling:
https://pdfs.semanticscholar.org/e878/79d42b50b8b0efcfac28883a85e1bd4a8c43.pdf
Beber and Pagano (2011) examine the consequences of short-sale bans around the world during the 2007-2009 crisis. They find that bans had negative effects on liquidity, especially for small cap stocks and stocks without listed options. Moreover, they find that the bans slowed down price discovery, especially in bear markets and failed to support prices in the vast majority of markets
Also a summary of another paper:
The authors find that, through the period of the ban, markets for financial stocks were substantially less efficient and that the role of the trading process aiding in price discovery was greatly reduced.
Auditors aren’t as heavily incentivised to find fraud, it’s clear in the past they have avoided disclosing it either through negligence / bad incentives. Shorts are always incentivised to disclose fraud.
I really don’t think the evidence supports an argument to ban short selling entirely, although that doesn’t preclude further regulation.