Abstract

http://ssrn.com/abstract=2124464
 


 



The Invisible Hand of Short Selling: Does Short Selling Discipline Earnings Management?


Massimo Massa


INSEAD - Finance

Bohui Zhang


University of New South Wales (UNSW) - School of Banking and Finance; Financial Research Network (FIRN)

Hong Zhang


INSEAD - Finance; PBC School of Finance

October 9, 2014

Review of Financial Studies, Forthcoming
INSEAD Working Paper No. 2012/93/FIN
Asian Finance Association (AsFA) 2013 Conference

Abstract:     
We hypothesize that short selling has a disciplining role vis-à-vis firm managers that forces them to reduce earnings management. Using firm-level short-selling data for 33 countries collected over a sample period from 2002 to 2009, we document a significantly negative relationship between the threat of short selling and earnings management. Tests based on instrumental variable and exogenous regulatory experiments offer evidence of a causal link between short selling and earnings management. Our findings suggest that short selling functions as an external governance mechanism to discipline managers.

Number of Pages in PDF File: 91

Keywords: short-selling, earning manipulation, international finance, governance

JEL Classification: G30, M41

Accepted Paper Series





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Date posted: August 6, 2012 ; Last revised: October 9, 2014

Suggested Citation

Massa, Massimo and Zhang, Bohui and Zhang, Hong, The Invisible Hand of Short Selling: Does Short Selling Discipline Earnings Management? (October 9, 2014). INSEAD Working Paper No. 2012/93/FIN; Review of Financial Studies, Forthcoming; INSEAD Working Paper No. 2012/93/FIN; Asian Finance Association (AsFA) 2013 Conference. Available at SSRN: http://ssrn.com/abstract=2124464 or http://dx.doi.org/10.2139/ssrn.2124464

Contact Information

Massimo Massa
INSEAD - Finance ( email )
Boulevard de Constance
F-77305 Fontainebleau Cedex
France
+33 1 6072 4481 (Phone)
+33 1 6072 4045 (Fax)
Bohui Zhang (Contact Author)
University of New South Wales (UNSW) - School of Banking and Finance ( email )
Australian School of Business
Sydney NSW, 2052
Australia
61293855834 (Phone)
61293856347 (Fax)
HOME PAGE: http://www.banking.unsw.edu.au/nps/servlet/portalservice?GI_ID=System.LoggedOutInheritableArea&maxWn

Financial Research Network (FIRN)
C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia
HOME PAGE: http://www.firn.org.au

Hong Zhang
INSEAD - Finance ( email )
1 Ayer Rajah Avenue
Singapore
Singapore
+65 6799 5340 (Phone)
+65 6799 5366 (Fax)
PBC School of Finance ( email )
No. 43 Chengfu Road
Haidian district
Beijing, 100083
China
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