Do Short Sellers Anticipate Late Filings?

47 Pages Posted: 9 Feb 2016 Last revised: 13 Jul 2021

See all articles by Rui Dai

Rui Dai

Wharton Research Data Services (WRDS)

Ting Li

Skidmore College - Department of Management and Business

Nataliya S. Zaiats

Suffolk University - Sawyer School of Management

Xinlei Zhao

University of Toledo - College of Business Administration; University of Kentucky, Gatton College of Business and Economics, Von Allmen School of Accountancy, Students

Date Written: July 12, 2019

Abstract

Exploiting the setting of firms that are unable to disclose timely financial reports and thus must file with the U.S. Securities and Exchange Commission (SEC) the NT 10-K (Q) report, this study examines whether short sellers target firms with financial reporting weaknesses. We find that short interest increases in firms prior to the NT 10-K (Q) filing, suggesting that short sellers identify and target firms that cannot file their financial reports in a timely manner. Short selling is positively significantly related to subsequent late filing status, and is more pronounced in late filers with high newswire activity and with accelerated filing deadlines. Short selling of late filing firms is significantly negatively related to subsequent performance thereby suggesting that short sellers' trades pertinent to late filers are profitable. Overall, the results underscore a high information processing ability of short sellers in the setting of firms that exhibit financial reporting deficiencies.

Keywords: Late SEC filings; Short Selling; Accounting Irregularity; Financial Reports; Stock Performance

JEL Classification: G14; G30; M41

Suggested Citation

Dai, Rui and Li, Ting and Zaiats, Nataliya S. and Zhao, Xinlei and Zhao, Xinlei, Do Short Sellers Anticipate Late Filings? (July 12, 2019). Asian Finance Association (AsianFA) 2016 Conference, Journal of Corporate Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2729052

Rui Dai

Wharton Research Data Services (WRDS) ( email )

3819 Chestnut St
Suite 300
Philadelphia, PA PA 19104
United States

Ting Li (Contact Author)

Skidmore College - Department of Management and Business ( email )

Saratoga Springs, NY 12866-1632
United States

Nataliya S. Zaiats

Suffolk University - Sawyer School of Management ( email )

Boston, MA 02108
United States

Xinlei Zhao

University of Toledo - College of Business Administration ( email )

2801 W. Bancroft
Toledo, OH 43606
United States

University of Kentucky, Gatton College of Business and Economics, Von Allmen School of Accountancy, Students ( email )

Lexington, KY 40506
United States

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