Can Short Sellers Constrain Opportunistic Non-GAAP Reporting?
58 Pages Posted: 31 Jan 2016 Last revised: 5 Mar 2019
Date Written: March 1, 2019
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: Suggested Citation