Can shorting a company's stock lead to said company failing?

Not necessarily, A stock is share in the company, and its value for the investor is based on its expected future profit. Gamestop has been in decline for years, a not uncommon retail trend in the face of online retail (think about how easy its been to bet against retail in a pandemic). Ideally a stocks value "prices in" all available information and the companies fundamentals (its debt-to-equity, growth, potential etc) - but stocks have been up all last year partly because of exogenous forces (the fed pumping money, the CARES act giving cash to unemployed, in poverty ie consumers).

Since a short is a bet that the stock will decline in value, it's based on the expectation that the company's future stock price will be lower. If the market sentiment becomes very strong, it might scare away investors and many companies perform stock buybacks in part so that they have holdings to liquidate to pay debtors in leaner times.

But what if you made a bad short and you're a major financial player? Well it would be illegal to just spread bad rumours to tank the shares and make bank off your short. That's called market distortion and its illegal because it can impact the future of a company especially if takes off, and professionals are expected not to make risky decisions that can harm the stability of the broader market.

But retail investors on a forum are not considered an institution. There's no formal co-ordination like at a Hedge Fund and unless Melvin Capital made an incredibly risky bet there's no problem. There's no code of conduct or test before amateurs trade in these risky markets - apps trading options to amateurs is unregulated.

The people calling now for regulation are facing a new type of coalition that could imperil a whole way of doing finance. They want rules that protect professionals but bind amateurs, and not rules that bind professionals and protect amateurs.