Short Selling Pressure, Stock Price Behavior, and Management Forecast Precision: Evidence from a Natural Experiment

55 Pages Posted: 7 Nov 2014 Last revised: 14 Mar 2015

See all articles by Yinghua Li

Yinghua Li

Arizona State University (ASU) - School of Accountancy

Liandong Zhang

Singapore Management University - School of Accountancy

Multiple version iconThere are 2 versions of this paper

Date Written: November 5, 2014

Abstract

Using a natural experiment (Regulation SHO), we show that short selling pressure and consequent stock price behavior have a causal effect on managers’ voluntary disclosure choices. Specifically, we find that managers respond to a positive exogenous shock to short selling pressure and price sensitivity to bad news by reducing the precision of bad news forecasts. This finding on management forecasts appears to be generalizable to other corporate disclosures. In particular, we find that, in response to increased short selling pressure, managers also reduce the readability (or increase the fuzziness) of bad news annual reports. Overall, our results suggest that maintaining the current level of stock prices is an important consideration in managers’ strategic disclosure decisions.

Keywords: Regulation SHO, short selling, corporate disclosure, forecast precision, annual report readability, managerial incentives

JEL Classification: D82, G14, G18, M41

Suggested Citation

Li, Yinghua and Zhang, Liandong, Short Selling Pressure, Stock Price Behavior, and Management Forecast Precision: Evidence from a Natural Experiment (November 5, 2014). Journal of Accounting Research, Vol. 53, pp. 79–117, 2015., Available at SSRN: https://ssrn.com/abstract=2519137

Yinghua Li (Contact Author)

Arizona State University (ASU) - School of Accountancy ( email )

Tempe, AZ 85287
United States
480-965-5188 (Phone)

HOME PAGE: http://wpcarey.asu.edu/people/profile/2386522

Liandong Zhang

Singapore Management University - School of Accountancy ( email )

60 Stamford Road
Singapore 178900
Singapore

HOME PAGE: http://accountancy.smu.edu.sg/faculty/profile/150531/Liandong-ZHANG

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