Abstract

http://ssrn.com/abstract=2380352
 


 



Do Short Sellers Exacerbate or Mitigate Managerial Myopia? Evidence from Patenting Activities


Jie He


University of Georgia - Department of Finance

Xuan Tian


Indiana University - Kelley School of Business - Department of Finance

September 15, 2016

The 2016 American Finance Association Meetings Paper

Abstract:     
We examine whether short sellers exacerbate or mitigate managerial myopia by using a firm’s patenting activities to capture managers’ myopic behavior. To establish causality, we use exogenous variation in short-selling costs generated by a quasi-natural experiment, Regulation SHO, which removes the tick restriction on a randomly-chosen subsample of Russell 3000 firms. We find that the quality, value, and originality of patents generated by treatment firms improve significantly more than control firms surrounding Regulation SHO, suggesting that short sellers are able to mitigate managerial myopia in investment decisions. The exposure to patenting-related litigation initiated by short sellers is a plausible mechanism through which short sellers curb myopic behavior, and managers of more opaque firms voluntarily disclose more information about their innovation activities in response to such litigation risk. Our paper provides new insights into a surprising and unintended real effect of short sellers – their mitigation of managerial myopia.

Number of Pages in PDF File: 48

Keywords: Managerial myopia; Patenting; Short selling; Regulation SHO; Litigation risk

JEL Classification: G14, G18, O31, O32


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Date posted: January 18, 2014 ; Last revised: September 16, 2016

Suggested Citation

He, Jie and Tian, Xuan, Do Short Sellers Exacerbate or Mitigate Managerial Myopia? Evidence from Patenting Activities (September 15, 2016). The 2016 American Finance Association Meetings Paper. Available at SSRN: http://ssrn.com/abstract=2380352 or http://dx.doi.org/10.2139/ssrn.2380352

Contact Information

Jie He (Contact Author)
University of Georgia - Department of Finance ( email )
424 Brooks Hall
Terry College of Business, University of Georgia
Athens, GA 30602-6253
United States
Xuan Tian
Indiana University - Kelley School of Business - Department of Finance ( email )
1309 E. Tenth Street
Bloomington, IN 47405
United States
812-8553420 (Phone)
824-8555875 (Fax)
HOME PAGE: http://kelley.iu.edu/tianx

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