Short Sellers and Long-Run Management Forecasts
57 Pages Posted: 24 Jun 2019
Date Written: June 7, 2019
We examine how short sellers affect long-run management forecasts using a natural experiment (Regulation SHO) that relaxes short-selling constraints on a group of randomly selected firms (referred to as pilot firms). We find that compared to other firms, the pilot firms issue more long-run good news forecasts but do not change the frequency of long-run bad news forecasts. The increase in good news forecasts is greater when the pilot firms have higher quality forecasts, more uncertainty about firm value, or higher manager equity incentives. Overall, these results and the results of additional analyses indicate that the reduction in short-selling constraints and the increase in short-selling threat induce managers to enhance disclosures through more long-run forecasts, primarily in the case of good news, to discourage short sellers.
Keywords: Short Sales; Corporate Disclosures; Management Forecasts
JEL Classification: G11, G14, M41
Suggested Citation: Suggested Citation