The Long-Term Effects of Short Selling and Negative Activism

71 Pages Posted: 9 Mar 2021 Last revised: 18 Apr 2022

See all articles by Peter Molk

Peter Molk

University of Florida Levin College of Law

Frank Partnoy

University of California, Berkeley - School of Law

Date Written: March 9, 2021

Abstract

We investigate the long-term effects of short selling and “negative activism,” where activists seek to profit from declines in the share prices of targeted firms. We show that negative activism is associated with significant and declining long-term share returns and operating performance, as well as an increase in securities litigation and regulatory actions against targeted firms. We explore the policy implications of this new evidence, including ways that policy makers and market participants might take advantage of the potential benefits of short selling negative activism. Our message is straightforward: resist impulses to curb short selling, and instead embrace attempts to harness the information generated by negative activists.

Keywords: activism, hedge funds, short selling, corporate finance, corporate governance

JEL Classification: k22, g30

Suggested Citation

Molk, Peter and Partnoy, Frank, The Long-Term Effects of Short Selling and Negative Activism (March 9, 2021). U. Ill. L. Rev., forthcoming, University of Florida Levin College of Law Research Paper No. 22-18, Available at SSRN: https://ssrn.com/abstract=3800514

Peter Molk (Contact Author)

University of Florida Levin College of Law ( email )

P.O. Box 117625
Gainesville, FL 32611-7625
United States

Frank Partnoy

University of California, Berkeley - School of Law ( email )

215 Boalt Hall
Berkeley, CA 94720-7200
United States

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