Short-Selling Threats and Bank Risk Taking

47 Pages Posted: 8 Jun 2021

See all articles by Dien Giau Bui

Dien Giau Bui

Yuan Ze University; Yuan Ze University

Iftekhar Hasan

Fordham University ; Bank of Finland; University of Sydney

Chih-Yung Lin

National Yang Ming Chiao Tung University

Nguyen Thoa

Can Tho University

Date Written: June 5, 2021

Abstract

This study uses a difference-in-differences approach with the Securities and Exchange Commission’s Regulation SHO as the focus and examine whether the threat of short-selling can twist banks’ decisions. Our results show that leverage, operating risk, systemic risk, tail risk, and stock volatility are lower for treatment than for control banks listed in the Russell 3000 index. The evidence shows that treatment banks face looser short-selling constraints under the regulation, which reduces risk-taking. Additionally, these effects are driven mainly by treatment banks hampered by poor corporate governance. Overall, our paper provides novel evidence that short-selling threats can stabilize the financial market.

Keywords: Regulation SHO, short-selling threats, bank risk-taking, systemic risks, corporate governance

JEL Classification: G02, G21, G32, G33

Suggested Citation

Bui, Dien Giau and Bui, Dien Giau and Hasan, Iftekhar and Lin, Chih-Yung and Thoa, Nguyen, Short-Selling Threats and Bank Risk Taking (June 5, 2021). Available at SSRN: https://ssrn.com/abstract=3860622 or http://dx.doi.org/10.2139/ssrn.3860622

Dien Giau Bui

Yuan Ze University ( email )

135, Far-East Rd., Chung-Li
Taoyuan, ROC
Taiwan

Yuan Ze University ( email )

No.135, Yuan-Tung Rd.
Zhongli City, Taoyuan 32003
Taiwan

Iftekhar Hasan

Fordham University ( email )

45 COLUMBUS AVENUE
GBA-5TH FLOOR
NEW YORK, NY 10023
United States

Bank of Finland ( email )

P.O. Box 160
Helsinki 00101
Finland

University of Sydney ( email )

P.O. Box H58
Sydney, NSW 2006
Australia

Chih-Yung Lin (Contact Author)

National Yang Ming Chiao Tung University ( email )

National chiao tung university, 1001 university ro
Hsinchu, 1001
Taiwan

Nguyen Thoa

Can Tho University ( email )

Vietnam

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