Short Sellers and Innovation: Evidence from a Quasi-Natural Experiment
University of Georgia - Department of Finance
Indiana University - Kelley School of Business - Department of Finance
March 18, 2014
We examine the causal 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 the Russell 3000 index firms into a pilot program, we show that short sellers have a positive, causal effect on firm innovation. The positive effect of short sellers on innovation is more pronounced when firms are subject to a larger agency problem and a higher degree of information asymmetry. Our paper provides new insights into an under-explored and possibly unintended real effect of short sellers – their encouragement for firm innovation.
Number of Pages in PDF File: 43
Keywords: Innovation, Short selling, Regulation SHO, Pilot program
JEL Classification: G14, G18, O31, O32working papers series
Date posted: January 18, 2014 ; Last revised: May 14, 2014
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