Short-Sale Constraints and Default Prediction around the World
Mark G. Maffett
University of Chicago - Booth School of Business
Edward L. Owens
Emory University - Department of Accounting
National University of Singapore - Department of Finance
December 29, 2014
Default prediction is more accurate in countries where short selling is less constrained. However, when economic uncertainty is high, more non-defaulting firms are incorrectly classified as likely to default in these countries. Non-equity-market-based sources of default-risk information improve the accuracy of default prediction, particularly where short selling is more constrained. Short-sale constraints are associated with higher credit spreads, suggesting that the net effect of constraining short selling is a decrease in the availability of default-risk-relevant information and less efficient resource allocation through credit markets.
Number of Pages in PDF File: 40
Keywords: default prediction, short selling constraints, financial reporting transparency
JEL Classification: G14, G15, G33, G38, M41working papers series
Date posted: July 23, 2013 ; Last revised: December 30, 2014
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