Can Short Sellers Constrain Opportunistic Non-GAAP Reporting?

58 Pages Posted: 31 Jan 2016 Last revised: 5 Mar 2019

See all articles by Neil Bhattacharya

Neil Bhattacharya

Singapore Management University - School of Accountancy; Southern Methodist University (SMU) - Accounting Department

Theodore E. Christensen

University of Georgia - J.M. Tull School of Accounting; University of Georgia

Qunfeng Liao

Oakland University-Department of Accounting and Finance

Bo Ouyang

Pennsylvania State University Great Valley

Date Written: March 1, 2019

Abstract

Prior research documents an association between short volume and the likelihood of non-GAAP disclosures, but does not causally link the two. Attribution of causality is problematic due to multiple self-selection issues. We exploit an exogenous shock—the SEC’s Regulation SHO—to investigate whether short-sellers discipline aggressive non-GAAP reporting. Our difference-in-differences (DiD) analyses suggest that the threat of increased short-selling significantly curbs aggressive non-GAAP disclosures. The effect is stronger when pre-disclosure information asymmetry is high and corporate governance is weak. Our results are robust to extensive sensitivity testing, including two additional DiD tests based on the ending date of Regulation SHO.

Keywords: Non-GAAP earnings, short sellers, Regulation SHO, earnings management

JEL Classification: G30, M41, K22

Suggested Citation

Bhattacharya, Neil and Christensen, Theodore E. and Liao, Qunfeng and Ouyang, Bo, Can Short Sellers Constrain Opportunistic Non-GAAP Reporting? (March 1, 2019). Available at SSRN: https://ssrn.com/abstract=2724935 or http://dx.doi.org/10.2139/ssrn.2724935

Neil Bhattacharya

Singapore Management University - School of Accountancy ( email )

60 Stamford Road
Singapore 178900
Singapore

Southern Methodist University (SMU) - Accounting Department ( email )

United States
214-768-3082 (Phone)
214-768-4099 (Fax)

HOME PAGE: http://www.cox.smu.edu

Theodore E. Christensen (Contact Author)

University of Georgia - J.M. Tull School of Accounting ( email )

Athens, GA 30602
United States

University of Georgia ( email )

Athens, GA
United States

Qunfeng Liao

Oakland University-Department of Accounting and Finance ( email )

275 Varner Drive
Rochester, MI 48309-4485
United States
248-370-4289 (Phone)

Bo Ouyang

Pennsylvania State University Great Valley ( email )

30 E. Swedesford Road
Malvern, PA 19355
United States
6106483371 (Phone)

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