Insider Sales under the Threat of Short Sellers: New Hypothesis and New Tests

55 Pages Posted: 1 Feb 2016 Last revised: 30 Jul 2019

See all articles by Kemin Wang

Kemin Wang

Fudan University - School of Management

Rencheng Wang

Singapore Management University - School of Accountancy

K.C. John Wei

Hong Kong Polytechnic University

Bohui Zhang

The Chinese University of Hong Kong, Shenzhen

Yi Zhou

Fudan University

Date Written: April 9, 2018

Abstract

Massa et al. (2015) show that corporate insiders become more opportunistic by selling more and faster in competition with short sellers. By considering the possibility that short sellers may react to insider trading, we propose a new hypothesis that short sellers play a disciplinary role in reducing insiders’ opportunistic selling. Using the US Regulation SHO program and the China deregulation pilot program as quasi-experiments, we document a negative effect of short-selling threats on opportunistic insider selling in both countries. This evidence is supported by insiders’ concerns regarding three effects of short selling: litigation risk, reputational damage, and loss of incentive compensation.

Keywords: Regulation SHO, Pilot program, Short selling, Insider trading, U.S., China

JEL Classification: D8, D53, G14, G18

Suggested Citation

Wang, Kemin and Wang, Rencheng and Wei, Kuo-Chiang (John) and Zhang, Bohui and Zhou, Yi, Insider Sales under the Threat of Short Sellers: New Hypothesis and New Tests (April 9, 2018). Available at SSRN: https://ssrn.com/abstract=2724532 or http://dx.doi.org/10.2139/ssrn.2724532

Kemin Wang

Fudan University - School of Management ( email )

No. 670, Guoshun Road
Shanghai, 200433
China

Rencheng Wang

Singapore Management University - School of Accountancy ( email )

60 Stamford Road
Singapore 178900
Singapore

Kuo-Chiang (John) Wei

Hong Kong Polytechnic University ( email )

11 Yuk Choi Rd
Hung Hom
Hong Kong

Bohui Zhang (Contact Author)

The Chinese University of Hong Kong, Shenzhen ( email )

Yi Zhou

Fudan University ( email )

No. 670, Guoshun Road
No.670 Guoshun Road
Shanghai, 200433
China

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