Activist Short-Selling and Corporate Opacity

49 Pages Posted: 19 Oct 2016 Last revised: 31 Jan 2019

See all articles by Wuyang Zhao

Wuyang Zhao

University of Texas at Austin

Date Written: January 30, 2019


Activist short-sellers could play an information role in capital markets by disclosing informative short-theses, or, as many are concerned, a manipulation role by spreading misinformation. To shed light on this controversy, this paper focuses on a powerful setting where both roles are heightened by studying activist short-sellers’ interest in opaque firms, whose investors tend to have low-precision information and thus give short-theses higher weight in their investing decisions. I find that activist short-sellers are more likely to target opaque firms than non-opaque firms while non-activist short-sellers the opposite. Moreover, opaque targets experience about three times more negative abnormal returns in both the short and long term than non-opaque targets. Further cross-sectional analyses show that opacity associates with even more negative short- and long-term returns for firms vulnerable to manipulation. Taken together, my findings suggest that activist short-sellers exploit corporate opacity to conduct informative rather than manipulative short attacks.

Keywords: Activist Short-Selling, Corporate Opacity, Information, Manipulation, Short-Interest, Returns

JEL Classification: G14, M41, M43

Suggested Citation

Zhao, Wuyang, Activist Short-Selling and Corporate Opacity (January 30, 2019). Available at SSRN: or

Wuyang Zhao (Contact Author)

University of Texas at Austin ( email )

Austin, TX 78712
United States
5128262698 (Phone)

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