SHO Time for Innovation: The Real Effects of Short Sellers
University of Georgia - Department of Finance
Indiana University - Kelley School of Business - Department of Finance
December 16, 2015
Kelley School of Business Research Paper No. 2014-14
We examine the effect of short sellers on innovation. Using exogenous variation in short-selling costs generated by a quasi-natural experiment, Regulation SHO, which randomly assigns a subsample of Russell-3000 firms into a pilot program and removes the tick restriction on their stocks, we show that short sellers have a positive, causal effect on the quality, efficiency, and originality of corporate innovation. The exposure to patenting-related litigation initiated by short sellers is a plausible mechanism through which short sellers affect firms’ innovative activities. Our paper provides new insights into an unintended real effect of short sellers – their improvement of technological innovation.
Number of Pages in PDF File: 47
Keywords: Innovation, Short selling, Regulation SHO, Pilot program, Litigation risk
JEL Classification: G14, G18, O31, O32
Date posted: January 18, 2014 ; Last revised: December 17, 2015
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