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

September 11, 2013


Abstract:     
During 2005-2007, the SEC ordered a pilot program in which one-third of the Russell 3000 index were arbitrarily chosen as pilot stocks and exempted from short-sale price tests. Pilot firms’ discretionary accruals reduce during this period, and revert to pre-experiment levels when the program ends. Conditional on committing financial misconduct, pilot firms are more likely to be caught. Pilot firms’ earnings response coefficients decline and coefficients of current returns on future earnings increase, then revert to pre-experiment levels after the program. We conclude that decreases in short selling costs constrain firms’ opportunistic reporting behavior and enhance share price efficiency.

Number of Pages in PDF File: 55

Keywords: Regulation SHO, Pilot Program, Short Selling, Earnings Management, Price efficiency

JEL Classification: G14, G18, G34, M41

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Date posted: June 29, 2013 ; Last revised: September 12, 2013

Suggested Citation

Fang, Vivian W. and Huang, Allen and Karpoff, Jonathan M., Short Selling and Earnings Management: A Controlled Experiment (September 11, 2013). 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
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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