Reputation and Recency: How Do Aggressive Short Sellers Assess Esg-Related Information?

Journal of Business Research, Forthcoming

43 Pages Posted: 10 Jun 2024

See all articles by Stephen E. Christophe

Stephen E. Christophe

George Mason University - Department of Finance

Jim Hsieh

George Mason University - Department of Finance

Hun Lee

Villanova University

Date Written: May 10, 2024

Abstract

We examine the effects of short- and long-term as well as positive and negative ESG reputation of companies on aggressive short selling. Our results suggest that aggressive short selling is most associated with recent and negative ESG-related news. These findings are consistent with the recency and negativity biases of reputation literature. When we separate the companies into positive and negative long-term ESG reputation, we find that aggressive short selling occurs most frequently in the subgroup of companies that possess a long-term, negative ESG reputation jointly with recent, negative ESG-related information. Interestingly, however, we do not find that the aggressive short selling of this subgroup is followed by significantly negative abnormal returns. Instead, we find significant negative abnormal returns following aggressive shorting of the subgroup with a long-term, positive ESG reputation coupled with recent, negative ESG-related information, which is consistent with the expectancy violation theory of reputation literature.

Keywords: ESG, reputation, short selling, stock returns

JEL Classification: G11, G12, G14, M14

Suggested Citation

Christophe, Stephen and Hsieh, Jim and Lee, Hun, Reputation and Recency: How Do Aggressive Short Sellers Assess Esg-Related Information? (May 10, 2024). Journal of Business Research, Forthcoming , Available at SSRN: https://ssrn.com/abstract=4823164 or http://dx.doi.org/10.2139/ssrn.4823164

Stephen Christophe

George Mason University - Department of Finance ( email )

Fairfax, VA 22030
United States
703-993-1767 (Phone)
703-993-1870 (Fax)

Jim Hsieh

George Mason University - Department of Finance ( email )

4400 University Dr.
George Mason University
Fairfax, VA 22030
United States

Hun Lee (Contact Author)

Villanova University ( email )

Villanova, PA 19085
United States

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