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Why Do Firms Disagree with Short Sellers? Managerial Myopia versus Private Information

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  • Bargeron, Leonce
  • Bonaime, Alice

Abstract

Though short sellers on average succeed at identifying overvalued equity, firms often signal disagreement with short sellers by repurchasing stock when short interest increases. We investigate whether this disagreement reflects a myopic defense of inflated prices, or positive private information. These repurchases appear motivated by managers’ private information, not agency issues, even when managerial benefits to short-termism are enhanced or monitoring is weaker. Managers’ informational advantage relates to subsequent news, earnings, and risk, but is attenuated if activists target management or insiders sell. A trading strategy based on our findings earns 7.5% annually.

Suggested Citation

  • Bargeron, Leonce & Bonaime, Alice, 2020. "Why Do Firms Disagree with Short Sellers? Managerial Myopia versus Private Information," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 55(8), pages 2431-2465, December.
    • Handle: RePEc:cup:jfinqa:v:55:y:2020:i:8:p:2431-2465_1
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    Cited by:

    1. Leonce Bargeron & Michael Farrell, 2021. "The Price Effect of Stock Repurchases: Evidence from Dual Class Firms," Management Science, INFORMS, vol. 67(10), pages 6568-6580, October.
    2. Gao, Yuan & Cheng, Xiaoke & Zhang, Wenyu & Shen, Haomin, 2024. "Individual investors’ dividend taxes and managerial myopia," Finance Research Letters, Elsevier, vol. 62(PB).
    3. Wei, Zhihua & Ren, Zerong & Zhu, Caiyun & Zhou, Yisihong & Liu, Xiaowen, 2023. "Minimum wage effects on firms’ R&D investment: Evidence from China," International Review of Economics & Finance, Elsevier, vol. 87(C), pages 287-305.

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