Abstract

http://ssrn.com/abstract=2296992
 


 



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

Anand Srinivasan


National University of Singapore - Department of Finance

March 6, 2015


Abstract:     
We find that default prediction is less accurate in countries where short selling is more constrained. However, the number of solvent firms incorrectly classified as likely to default is also lower in these countries when economic uncertainty is high. Non-equity-market-based default predictors partially mitigate the observed loss in predictive accuracy of market-based predictors where short selling is more constrained. Short-sale constraints are associated with higher credit spreads, suggesting that the net effect of short-sale constraints 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: 43

Keywords: default prediction, short selling constraints, financial reporting transparency

JEL Classification: G14, G15, G33, G38, M41


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Date posted: July 23, 2013 ; Last revised: March 7, 2015

Suggested Citation

Maffett, Mark G. and Owens, Edward L. and Srinivasan, Anand, Short-Sale Constraints and Default Prediction around the World (March 6, 2015). Available at SSRN: http://ssrn.com/abstract=2296992 or http://dx.doi.org/10.2139/ssrn.2296992

Contact Information

Mark G. Maffett (Contact Author)
University of Chicago - Booth School of Business ( email )
5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

Chicago Booth School of Business Logo

Edward L. Owens
Emory University - Department of Accounting ( email )
Goizueta Business School
1300 Clifton Road
Atlanta, GA 30322
United States
Anand Srinivasan
National University of Singapore - Department of Finance ( email )
Mochtar Riady Building
15 Kent Ridge Drive
Singapore, 119245
Singapore
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