Does Short Selling Inform or Manipulate Capital Investment?

36 Pages Posted: 4 Jul 2019 Last revised: 2 Oct 2020

See all articles by Jason Turkiela

Jason Turkiela

University of Minnesota - Duluth - Labovitz School of Business and Economics (LSBE)

Date Written: October 1, 2020

Abstract

Recent theoretical work suggests that short sellers can manipulate firms into making suboptimal investment decisions. In this study, I empirically test whether short sellers improve or harm the efficiency of firms' capital investment. Overall, I show that short selling improves the efficiency of firms' capital budgeting. However, I also demonstrate that following the full repeal of the uptick rule in 2007, short selling now has a deleterious effect on investment efficiency. Furthermore, in subsample analyses, I find support for manipulative short selling taking place in firms with high levels of short-term leverage, stock market liquidity, and informed trading..

Keywords: Corporate Investment, Manipulation, Misvaluation, Panel Data Vector Autoregression, Short Selling

JEL Classification: G14, G31

Suggested Citation

Turkiela, Jason, Does Short Selling Inform or Manipulate Capital Investment? (October 1, 2020). Available at SSRN: https://ssrn.com/abstract=3413939 or http://dx.doi.org/10.2139/ssrn.3413939

Jason Turkiela (Contact Author)

University of Minnesota - Duluth - Labovitz School of Business and Economics (LSBE) ( email )

412 Library Drive
Duluth, MN 55812-2496
United States

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