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Responding to Activist Short Sellers: Allegations, Firm Responses, and Outcomes

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  • Janja Brendel
  • James Ryans

Abstract

This study provides descriptive evidence on how firms respond to activist short seller reports and how these responses are associated with outcomes for the targeted firms. We show that the frequency of these reports has grown substantially in recent years. Although we find that firms respond only 31% of the time, this rate increases substantially when the report is accompanied by significantly negative abnormal returns and when the report contains new evidence. Not responding is associated with a less negative stock price response at report release and fewer adverse outcomes. Firms that launch internal investigations following the report release have significantly higher subsequent rates of stock exchange delisting and SEC enforcement actions, and lower rates of being acquired. Overall, our results highlight the impact of activist short sellers on target firms and that firm responses are associated with material outcomes.

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  • Janja Brendel & James Ryans, 2021. "Responding to Activist Short Sellers: Allegations, Firm Responses, and Outcomes," Journal of Accounting Research, Wiley Blackwell, vol. 59(2), pages 487-528, May.
    • Handle: RePEc:bla:joares:v:59:y:2021:i:2:p:487-528
    DOI: 10.1111/1475-679X.12356
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    References listed on IDEAS

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    Cited by:

    1. Jinzhi Lu & Pingyang Gao, 2024. "Short, Disclose, and Distort," Papers 2404.07630, arXiv.org.
    2. Ryan McDonough & Venky Nagar & Jordan Schoenfeld, 2024. "Voluntary disclosures by activist investors: the role of activist expectations," Review of Accounting Studies, Springer, vol. 29(3), pages 2031-2081, September.
    3. Stolowy, Hervé & Paugam, Luc & Gendron, Yves, 2022. "Competing for narrative authority in capital markets: Activist short sellers vs. financial analysts," Accounting, Organizations and Society, Elsevier, vol. 100(C).
    4. Bessler, Wolfgang & Vendrasco, Marco, 2022. "Short-selling restrictions and financial stability in Europe: Evidence from the Covid-19 crisis," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 80(C).
    5. Bloomfield, Matthew J. & Heinle, Mirko & Timmermans, Oscar, 2024. "Relative performance evaluation and strategic peer-harming disclosures," LSE Research Online Documents on Economics 122509, London School of Economics and Political Science, LSE Library.

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