Short Sellers and Managerial Equity Market Timing

56 Pages Posted: 27 Jun 2019 Last revised: 17 Mar 2020

See all articles by Suchi Mishra

Suchi Mishra

Florida International University (FIU) - Department of Finance

Özde Öztekin

Florida International University (FIU)

Anisur Rahman

Westminster College

Date Written: March 15, 2020

Abstract

Managers tend to issue equity when a firm is overvalued. Short selling is generally frequent among overvalued firms. By conditioning short selling on firm overvaluation, we show that short selling reduces managerial equity market timing and increases leverage. This moderating impact of short selling on market timing is more pronounced in firms with independent boards and with an increased likelihood of misvaluation, is primarily driven by overvaluation relative to long-run value, and occurs mainly through changes in equity issuances. The analyses that utilize the exogenous shock to the short selling environment from the SEC’s Reg SHO pilot program suggest that these results are causal.

Keywords: Capital Structure, Equity Market Timing, Short-sellers, Corporate Governance, Ownership Structure

JEL Classification: G14, G18, G32, G38

Suggested Citation

Mishra, Suchismita and Öztekin, Özde and Rahman, Anisur, Short Sellers and Managerial Equity Market Timing (March 15, 2020). Available at SSRN: https://ssrn.com/abstract=3408974 or http://dx.doi.org/10.2139/ssrn.3408974

Suchismita Mishra

Florida International University (FIU) - Department of Finance ( email )

University Park
11200 SW 8th Street
Miami, FL 33199
United States

Özde Öztekin (Contact Author)

Florida International University (FIU) ( email )

University Park
11200 SW 8th Street
Miami, FL 33199
United States

Anisur Rahman

Westminster College ( email )

501 Westminster Ave
Fulton, MO 65251
United States
(573) 592 - 5662 (Phone)

HOME PAGE: http://https://www.wcmo.edu/

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