Short Selling and Readability in Financial Disclosures: A Controlled Experiment

43 Pages Posted: 8 Aug 2017 Last revised: 24 May 2022

See all articles by Minxing Sun

Minxing Sun

Clemson University - Department of Finance

Weike Xu

Clemson University - Department of Finance

Date Written: May 24, 2022

Abstract

We examine the causal effect of short-selling on a firm’s annual report readability using Regulation SHO, which relaxes short-sale constraints for a random sample of pilot stocks. Pilot firms’ annual report readability are significantly lower than that for the non-pilot firms during the experiment period. Our results are more pronounced for firms that receive less investor attention. Furthermore, pilot firms increase the use of uncertainty words in annual reports during the experiment period. Our results suggest that firms produce less transparent financial disclosures that are more costly for investors to comprehend when short-sale constraints are less rigorous.

Keywords: Regulation SHO; Short-selling; Annual report readability; Limited attention

JEL Classification: G14; G18; M41

Suggested Citation

Sun, Minxing and Xu, Weike, Short Selling and Readability in Financial Disclosures: A Controlled Experiment (May 24, 2022). Available at SSRN: https://ssrn.com/abstract=3015101 or http://dx.doi.org/10.2139/ssrn.3015101

Minxing Sun

Clemson University - Department of Finance ( email )

Clemson, SC 29634
United States

Weike Xu (Contact Author)

Clemson University - Department of Finance ( email )

425 Sirrine Hall
Clemson, SC 29634
United States

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