Insider Sales under the Threat of Short Sellers: New Hypothesis and New Tests
50 Pages Posted: 1 Feb 2016 Last revised: 16 Jun 2021
Date Written: April 9, 2018
Using the Regulation SHO program as a quasi-experiment, we document that the threat of short selling has a negative effect on the volume of opportunistic insider selling and a positive effect on its profitability for each transaction. These effects are stronger among firms with higher litigation risk, greater media coverage, and executives who have more of their firms’ stock-related holdings. We further find robust evidence when we extend the analyses to short selling deregulations in the Chinese and Hong Kong stock exchanges. Overall, our findings suggest that short sellers play a disciplinary role in opportunistic insider selling.
Keywords: Regulation SHO, short selling, insider trading, disciplining hypothesis, crowding-out hypothesis
JEL Classification: D8, D53, G14, G18
Suggested Citation: Suggested Citation