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Don’t Touch My Cheese: Short Selling Pressure, Executive Compensation Justification, and Real Activity Earnings Management

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  • Fei Liu
  • Jianhua Du
  • Chao Bian

Abstract

This article aims at investigating the effects of short selling on a firm’s executive compensation and earnings management. We use a panel data set of Chinese public firms from 2007 to 2014 to test our hypotheses. We find that the level of excess compensation in short-selling firms is greater than that in non-short-selling firms. Our further analysis shows that the executives of the short-selling firms will justify their excess compensation by improving the pay-performance sensitivity, which is accomplished through the real earnings management. Finally, we find that there is more prominent decrease/increase in accrual/real earnings management in short-selling firms.

Suggested Citation

  • Fei Liu & Jianhua Du & Chao Bian, 2019. "Don’t Touch My Cheese: Short Selling Pressure, Executive Compensation Justification, and Real Activity Earnings Management," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 55(9), pages 1969-1990, July.
    • Handle: RePEc:mes:emfitr:v:55:y:2019:i:9:p:1969-1990
    DOI: 10.1080/1540496X.2018.1501675
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    Cited by:

    1. Mubashar Tanveer & Mohsin Altaf & Zahid Ali Akbar & Uzma Nisar, 2022. "Influence of Advertising Intensity on Real Earnings Management: Evidence from Four Sectors of Pakistan," Journal of Economic Impact, Science Impact Publishers, vol. 4(1), pages 158-164.
    2. Lu, Pu & Wang, Yong & Li, Bing, 2024. "Short selling and corporate financial fraud: Empirical evidence from China," International Review of Economics & Finance, Elsevier, vol. 89(PA), pages 1569-1582.
    3. Wenzhen Mai & Nik Intan Norhan Binti Abdul Hamid, 2021. "The Moderating Effect of Family Business Ownership on the Relationship between Short-Selling Mechanism and Firm Value for Listed Companies in China," JRFM, MDPI, vol. 14(6), pages 1-20, May.

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