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Short‐selling pressure and year‐over‐year MD&A modifications

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  • Johan Maharjan
  • Seung Won Lee

Abstract

Using the SEC's Regulation SHO as a natural experiment, we examine the effect of an increase in short selling pressure on the year‐over‐year modification of management discussion and analysis (MD&A) section of firms' 10‐K reports. We find that the elevated threat of short selling, resulting from the removal of short‐sale constraint, causes the randomly selected pilot firms to modify the MD&A section less relative to the previous year than non‐pilot firms during the Regulation SHO period (2005–2007). Moreover, cross‐sectional analyses indicate that this effect is pronounced in firms with moderately good news; firms that increase investment or equity issuance; larger or overvalued firms; and firms with conservative managers, financial stability, and opaque information environments.

Suggested Citation

  • Johan Maharjan & Seung Won Lee, 2022. "Short‐selling pressure and year‐over‐year MD&A modifications," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 62(3), pages 3513-3562, September.
    • Handle: RePEc:bla:acctfi:v:62:y:2022:i:3:p:3513-3562
    DOI: 10.1111/acfi.12895
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    References listed on IDEAS

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