Do Corporate Managers Trade Against Short Sellers?

35 Pages Posted: 2 Aug 2011 Last revised: 4 Sep 2011

See all articles by Harrison Liu

Harrison Liu

University of Texas at San Antonio - Department of Accounting

Edward P. Swanson

Texas A&M University - Mays Business School; Mays Business School, Texas A&M University

Date Written: September 1, 2011

Abstract

Motivated by the significant capital allocated to repurchasing stock and its potential affect on price discovery, we develop an empirical model of changes in corporate stock repurchases. We find that share price, capital availability, dividend policy, firm size, and operating profitability significantly influence quarterly stock repurchases, but our novel discovery is that managers trade against shorts by increasing (decreasing) repurchases in response to an increase (decrease) in short sales. This practice appears to violate SEC regulations that stock price be set by “independent market forces without undue influence by the issuer.” We also empirically model insider trading, finding that insiders buy and sell with the shorts, with little attention to the amount of shares being repurchased. Managers therefore trade with shorts when using their personal capital, but against them with corporate capital.

Keywords: short selling, stock repurchases, insider trading

Suggested Citation

Liu, Harrison and Swanson, Edward P., Do Corporate Managers Trade Against Short Sellers? (September 1, 2011). Available at SSRN: https://ssrn.com/abstract=1899354 or http://dx.doi.org/10.2139/ssrn.1899354

Harrison Liu

University of Texas at San Antonio - Department of Accounting ( email )

One UTSA Circle
San Antonio, TX 78249
United States

Edward P. Swanson (Contact Author)

Texas A&M University - Mays Business School ( email )

430 Wehner
College Station, TX 77843-4353
United States
979-845-8970 (Phone)
979-845-0028 (Fax)

Mays Business School, Texas A&M University ( email )

Wehner, MS 4353
College Station, TX 77843-4353
United States
979-845-5014 (Phone)
979-845-0028 (Fax)

Register to save articles to
your library

Register

Paper statistics

Downloads
180
Abstract Views
854
rank
169,855
PlumX Metrics