Short Interest and Stock Price Crash Risk
Posted: 19 Apr 2014 Last revised: 21 Aug 2015
Date Written: August 3, 2015
Using a large sample of U.S. public firms, we find robust evidence that short interest is positively related to one-year ahead stock price crash risk. The evidence is consistent with the view that short sellers are able to ferret out bad news hoarding by managers. Additional findings show that the positive relation between short interest and future crash risk is more salient for firms with weak governance mechanisms, excessive risk-taking behavior, and high information asymmetry between managers and shareholders. Empirical support is provided showing that the relation between short interest and crash risk is driven by bad news hoarding.
Keywords: crash risk; short interest; agency conflict
JEL Classification: G12; G32; G34; D82
Suggested Citation: Suggested Citation