Short Selling Governance and Intrafirm Resource Allocation

36 Pages Posted: 27 Feb 2017 Last revised: 14 Jul 2017

James F. Albertus

Carnegie Mellon University - Tepper School of Business

Andrew Bird

Carnegie Mellon University - Tepper School of Business

Stephen A. Karolyi

Carnegie Mellon University - Tepper School of Business

Thomas G. Ruchti

Carnegie Mellon University - Tepper School of Business

Date Written: February 24, 2017

Abstract

We exploit Regulation SHO as a natural experiment to investigate the effects of short selling threats on intrafirm capital allocation. Using detailed data on the foreign operations of multinationals, we find that the marginal effect on aggregate investment masks a significant effect on intrafirm reallocation. Managers reallocate investment and R&D expenditures across borders toward productive subsidiaries and R&D centers, respectively. Treated firms shifted 30% more capital toward foreign subsidiaries with strong recent performance. These results provide new evidence on the scope and potential benefits of governance by short sellers and demonstrate the importance of cross-border spillovers of capital markets regulation.

Suggested Citation

Albertus, James F. and Bird, Andrew and Karolyi, Stephen A. and Ruchti, Thomas G., Short Selling Governance and Intrafirm Resource Allocation (February 24, 2017). Available at SSRN: https://ssrn.com/abstract=2923404

James F. Albertus (Contact Author)

Carnegie Mellon University - Tepper School of Business ( email )

5000 Forbes Avenue
Pittsburgh, PA 15213-3890
United States

Andrew Bird

Carnegie Mellon University - Tepper School of Business ( email )

Pittsburgh, PA 15213-3890
United States

Stephen A. Karolyi

Carnegie Mellon University - Tepper School of Business ( email )

5000 Forbes Avenue
Pittsburgh, PA 15213-3890
United States
4122682909 (Phone)

Thomas G. Ruchti

Carnegie Mellon University - Tepper School of Business ( email )

5000 Forbes Avenue
Pittsburgh, PA 15213-3890
United States

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