Abstract

http://ssrn.com/abstract=2286818
 


 



Short Selling and Earnings Management: A Controlled Experiment


Vivian W. Fang


University of Minnesota - Twin Cities - Department of Accounting

Allen Huang


Hong Kong University of Science and Technology - Department of Accounting

Jonathan M. Karpoff


University of Washington - Michael G. Foster School of Business

November 16, 2014


Abstract:     
During 2005-2007, the SEC ordered a pilot program in which one-third of the Russell 3000 were arbitrarily chosen as pilot stocks and exempted from short-sale price tests. Pilot firms’ discretionary accruals and likelihood of marginally beating earnings targets decrease during this period, and revert to pre-experiment levels when the program ends. After the program starts, pilot firms are more likely to be caught for fraud initiated before the program, and their stock returns better incorporate earnings information. These results indicate that short selling, or its prospect, works to curb earnings management, helps to detect fraud, and improves price efficiency.

Number of Pages in PDF File: 54

Keywords: Regulation SHO, Pilot Program, Short Selling, Earnings Management, Fraud Discovery, Price Efficiency

JEL Classification: G14, G18, G19, M41, M48

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Date posted: June 29, 2013 ; Last revised: November 17, 2014

Suggested Citation

Fang, Vivian W. and Huang, Allen and Karpoff, Jonathan M., Short Selling and Earnings Management: A Controlled Experiment (November 16, 2014). Available at SSRN: http://ssrn.com/abstract=2286818 or http://dx.doi.org/10.2139/ssrn.2286818

Contact Information

Vivian W. Fang
University of Minnesota - Twin Cities - Department of Accounting ( email )
321 19th Avenue South
Room 3-109
Minneapolis, MN 55455
United States
HOME PAGE: http://www.vivianfang.org
Allen Huang
Hong Kong University of Science and Technology - Department of Accounting ( email )
LSK Business School Building
HKUST
Clear Water Bay, Kowloon
Hong Kong
+852-23587559 (Phone)
HOME PAGE: http://www.AllenHuang.org
Jonathan M. Karpoff (Contact Author)
University of Washington - Michael G. Foster School of Business ( email )
Box 353200
Seattle, WA 98195-3200
United States
206-685-4954 (Phone)
206-221-6856 (Fax)
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