IDEAS home Printed from https://ideas.repec.org/a/wly/coacre/v37y2020i2p802-828.html
   My bibliography  Save this article

Short Sellers and Long‐Run Management Forecasts

Author

Listed:
  • Xia Chen
  • Qiang Cheng
  • Ting Luo
  • Heng Yue

Abstract

We examine how short sellers affect long‐run management forecasts using a natural experiment (Regulation SHO) that relaxes short‐selling constraints on a group of randomly selected firms (referred to as pilot firms). We find that compared to other firms, the pilot firms issue more long‐run good news forecasts but do not change the frequency of long‐run bad news forecasts. The increase in good news forecasts is greater when the pilot firms have higher‐quality forecasts, greater uncertainty about firm value, or higher manager equity incentives. Overall, these results and the results of additional analyses indicate that the reduction in short‐selling constraints and the increase in short‐selling threat induce managers to enhance disclosures through more long‐run good news forecasts to discourage short sellers. Vendeurs à découvert et prévisions à long terme des dirigeants Les auteurs analysent les mécanismes de l'influence des vendeurs à découvert sur les prévisions à long terme des dirigeants, à l'aide d'une expérience naturelle (le Règlement SHO) d'allègement des contraintes relatives aux ventes à découvert pour un groupe de sociétés sélectionnées aléatoirement (appelées sociétés pilotes). Ils constatent que, comparativement aux autres sociétés, les sociétés pilotes publient davantage de prévisions favorables à long terme sans toutefois modifier la fréquence de publication des prévisions défavorables à long terme. La multiplication des prévisions favorables est plus importante dans le cas des sociétés pilotes qui se caractérisent par des prévisions de qualité supérieure, une plus grande incertitude quant à la valeur de l'entreprise ou une plus grande proportion de la rémunération des dirigeants sous forme d'actions. Dans l'ensemble, ces résultats et ceux d'analyses supplémentaires révèlent que l'allègement des contraintes relatives aux ventes à découvert et l'intensification de la menace de ventes à découvert poussent les dirigeants à améliorer l'information communiquée en multipliant les prévisions favorables à long terme, afin de freiner les ventes à découvert.

Suggested Citation

  • Xia Chen & Qiang Cheng & Ting Luo & Heng Yue, 2020. "Short Sellers and Long‐Run Management Forecasts," Contemporary Accounting Research, John Wiley & Sons, vol. 37(2), pages 802-828, June.
    • Handle: RePEc:wly:coacre:v:37:y:2020:i:2:p:802-828
    DOI: 10.1111/1911-3846.12554
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/1911-3846.12554
    Download Restriction: no
    File URL: https://libkey.io/10.1111/1911-3846.12554?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Rogers, Jonathan L. & Van Buskirk, Andrew, 2013. "Bundled forecasts in empirical accounting research," Journal of Accounting and Economics, Elsevier, vol. 55(1), pages 43-65.
    2. Skinner, Dj, 1994. "Why Firms Voluntarily Disclose Bad-News," Journal of Accounting Research, Wiley Blackwell, vol. 32(1), pages 38-60.
    3. Engelberg, Joseph E. & Reed, Adam V. & Ringgenberg, Matthew C., 2012. "How are shorts informed?," Journal of Financial Economics, Elsevier, vol. 105(2), pages 260-278.
    4. Gregory S. Miller, 2002. "Earnings Performance and Discretionary Disclosure," Journal of Accounting Research, Wiley Blackwell, vol. 40(1), pages 173-204, March.
    5. Jo, Hoje & Kim, Yongtae, 2007. "Disclosure frequency and earnings management," Journal of Financial Economics, Elsevier, vol. 84(2), pages 561-590, May.
    6. Bipin Ajinkya & Sanjeev Bhojraj & Partha Sengupta, 2005. "The Association between Outside Directors, Institutional Investors and the Properties of Management Earnings Forecasts," Journal of Accounting Research, Wiley Blackwell, vol. 43(3), pages 343-376, June.
    7. Karthik Balakrishnan & Mary Brooke Billings & Bryan Kelly & Alexander Ljungqvist, 2014. "Shaping Liquidity: On the Causal Effects of Voluntary Disclosure," Journal of Finance, American Finance Association, vol. 69(5), pages 2237-2278, October.
    8. Chuk, Elizabeth & Matsumoto, Dawn & Miller, Gregory S., 2013. "Assessing methods of identifying management forecasts: CIG vs. researcher collected," Journal of Accounting and Economics, Elsevier, vol. 55(1), pages 23-42.
    9. Shuping Chen & Xia Chen & Qiang Cheng, 2008. "Do Family Firms Provide More or Less Voluntary Disclosure?," Journal of Accounting Research, Wiley Blackwell, vol. 46(3), pages 499-536, June.
    10. Verrecchia, Robert E., 2001. "Essays on disclosure," Journal of Accounting and Economics, Elsevier, vol. 32(1-3), pages 97-180, December.
    11. Beneish, M.D. & Lee, C.M.C. & Nichols, D.C., 2015. "In short supply: Short-sellers and stock returns," Journal of Accounting and Economics, Elsevier, vol. 60(2), pages 33-57.
    12. Ekkehart Boehmer & Charles M. Jones & Xiaoyan Zhang, 2013. "Shackling Short Sellers: The 2008 Shorting Ban," The Review of Financial Studies, Society for Financial Studies, vol. 26(6), pages 1363-1400.
    13. Ekkehart Boehmer & Juan (Julie) Wu, 2013. "Short Selling and the Price Discovery Process," The Review of Financial Studies, Society for Financial Studies, vol. 26(2), pages 287-322.
    14. Itay Goldstein & Alexander Guembel, 2008. "Manipulation and the Allocational Role of Prices," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 75(1), pages 133-164.
    15. Christophe, Stephen E. & Ferri, Michael G. & Hsieh, Jim, 2010. "Informed trading before analyst downgrades: Evidence from short sellers," Journal of Financial Economics, Elsevier, vol. 95(1), pages 85-106, January.
    16. Shleifer, Andrei & Vishny, Robert W, 1997. "The Limits of Arbitrage," Journal of Finance, American Finance Association, vol. 52(1), pages 35-55, March.
    17. Owen A. Lamont, 2012. "Go Down Fighting: Short Sellers vs. Firms," The Review of Asset Pricing Studies, Society for Financial Studies, vol. 2(1), pages 1-30.
    18. Vivian W. Fang & Allen H. Huang & Jonathan M. Karpoff, 2016. "Short Selling and Earnings Management: A Controlled Experiment," Journal of Finance, American Finance Association, vol. 71(3), pages 1251-1294, June.
    19. Khanna, Naveen & Mathews, Richmond D., 2012. "Doing battle with short sellers: The conflicted role of blockholders in bear raids," Journal of Financial Economics, Elsevier, vol. 106(2), pages 229-246.
    20. Anilowski, Carol & Feng, Mei & Skinner, Douglas J., 2007. "Does earnings guidance affect market returns? The nature and information content of aggregate earnings guidance," Journal of Accounting and Economics, Elsevier, vol. 44(1-2), pages 36-63, September.
    21. Yinghua Li & Liandong Zhang, 2015. "Short Selling Pressure, Stock Price Behavior, and Management Forecast Precision: Evidence from a Natural Experiment," Journal of Accounting Research, Wiley Blackwell, vol. 53(1), pages 79-117, March.
    22. Guojin Gong & Laura Y. Li & Jeff J. Wang, 2011. "Serial Correlation in Management Earnings Forecast Errors," Journal of Accounting Research, Wiley Blackwell, vol. 49(3), pages 677-720, June.
    23. Hong, Harrison & Kubik, Jeffrey D. & Fishman, Tal, 2012. "Do arbitrageurs amplify economic shocks?," Journal of Financial Economics, Elsevier, vol. 103(3), pages 454-470.
    24. Ekkehart Boehmer & Charles M. Jones & Xiaoyan Zhang, 2008. "Which Shorts Are Informed?," Journal of Finance, American Finance Association, vol. 63(2), pages 491-527, April.
    25. Theodore E. Christensen & Michael S. Drake & Jacob R. Thornock, 2014. "Optimistic Reporting and Pessimistic Investing: Do Pro Forma Earnings Disclosures Attract Short Sellers?," Contemporary Accounting Research, John Wiley & Sons, vol. 31(1), pages 67-102, March.
    26. Qiang Cheng & Kin Lo, 2006. "Insider Trading and Voluntary Disclosures," Journal of Accounting Research, Wiley Blackwell, vol. 44(5), pages 815-848, December.
    27. Scott Richardson & Siew Hong Teoh & Peter D. Wysocki, 2004. "The Walk†down to Beatable Analyst Forecasts: The Role of Equity Issuance and Insider Trading Incentives," Contemporary Accounting Research, John Wiley & Sons, vol. 21(4), pages 885-924, December.
    28. David De Angelis & Gustavo Grullon & Sébastien Michenaud, 2017. "The Effects of Short-Selling Threats on Incentive Contracts: Evidence from an Experiment," The Review of Financial Studies, Society for Financial Studies, vol. 30(5), pages 1627-1659.
    29. Michael C. Jensen, 2005. "Agency Costs of Overvalued Equity," Financial Management, Financial Management Association, vol. 34(1), Spring.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Vellore Arthi & Markus Lampe & Ashwin Nair & Kevin Hjortshøj O’Rourke, 2024. "Deliberate Surrender? The Impact of Interwar Indian Protection," The Economic Journal, Royal Economic Society, vol. 134(657), pages 23-47.
    2. Pedro Dias Moreira & João Monteiro, 2023. "The Impact of a Higher Cost of Credit on Exporters: Evidence from a Change in Banking Regulation," Working Papers w202320, Banco de Portugal, Economics and Research Department.
    3. Jiang, Haiyan & Jia, Jing, 2021. "Short selling and future cash flow predictability of capital investment: Evidence from Australia," Journal of Contemporary Accounting and Economics, Elsevier, vol. 17(1).
    4. Haiyan Jiang & Ahsan Habib & Mostafa Monzur Hasan, 2022. "Short Selling: A Review of the Literature and Implications for Future Research," European Accounting Review, Taylor & Francis Journals, vol. 31(1), pages 1-31, January.
    5. Connelly, Brian L. & Shi, Wei & Cheng, Xin & Yin, Cheng, 2021. "Short Sellers: A screening theory perspective on B2B relationships," Journal of Business Research, Elsevier, vol. 134(C), pages 393-404.
    6. Deng, Xiaohu & Jiang, Christine & Young, Danqing, 2021. "Short selling constraints and politically motivated negative information suppression," Journal of Corporate Finance, Elsevier, vol. 68(C).
    7. He, Meng & Bai, Xuelian & Zhang, Junrui, 2024. "Does short selling reduce classification shifting?—— Exploration of market-oriented governance mechanism," International Review of Financial Analysis, Elsevier, vol. 93(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Hurwitz, Helen, 2017. "The understatement of large negative earnings news in managers’ annual guidance," Journal of Contemporary Accounting and Economics, Elsevier, vol. 13(2), pages 119-133.
    2. Nilabhra Bhattacharya & Theodore E. Christensen & Qunfeng Liao & Bo Ouyang, 2022. "Can short sellers constrain aggressive non-GAAP reporting?," Review of Accounting Studies, Springer, vol. 27(2), pages 391-440, June.
    3. Haiyan Jiang & Ahsan Habib & Mostafa Monzur Hasan, 2022. "Short Selling: A Review of the Literature and Implications for Future Research," European Accounting Review, Taylor & Francis Journals, vol. 31(1), pages 1-31, January.
    4. Xu Guo & Chunchi Wu, 2022. "Short Selling Activity and Effects on Financial Markets and Corporate Decisions," Springer Books, in: Cheng-Few Lee & Alice C. Lee (ed.), Encyclopedia of Finance, edition 0, chapter 98, pages 2313-2340, Springer.
    5. Thomas Bourveau & Yun Lou & Rencheng Wang, 2018. "Shareholder Litigation and Corporate Disclosure: Evidence from Derivative Lawsuits," Journal of Accounting Research, Wiley Blackwell, vol. 56(3), pages 797-842, June.
    6. Jiang, Jinglin & Nanda, Vikram & Xiao, Steven Chong, 2021. "Stock-market disruptions and corporate disclosure policies," Journal of Corporate Finance, Elsevier, vol. 66(C).
    7. Inder K. Khurana & Yinghua Li & Wei Wang, 2018. "The Effects of Hedge Fund Interventions on Strategic Firm Behavior," Management Science, INFORMS, vol. 64(9), pages 4094-4117, September.
    8. Franzoni, Francesco & Di Maggio, Marco & Massa, Massimo & Tubaldi, Roberto, 2019. "Strategic Trading as a Response to Short Sellers," CEPR Discussion Papers 13812, C.E.P.R. Discussion Papers.
    9. Qiang Cheng & Young Jun Cho & Jae B. Kim, 2021. "Managers’ pay duration and voluntary disclosures," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 48(7-8), pages 1332-1367, July.
    10. Hae Mi Choi, 2020. "Short‐sale constraints and informational efficiency to private information: A natural experiment," The Financial Review, Eastern Finance Association, vol. 55(4), pages 625-643, November.
    11. Stephie Tsai, Hsin-Ju & Wu, Yuliang & Xu, Bin, 2021. "Does capital market drive corporate investment efficiency? Evidence from equity lending supply," Journal of Corporate Finance, Elsevier, vol. 69(C).
    12. Jank, Stephan & Roling, Christoph & Smajlbegovic, Esad, 2021. "Flying under the radar: The effects of short-sale disclosure rules on investor behavior and stock prices," Journal of Financial Economics, Elsevier, vol. 139(1), pages 209-233.
    13. Jiang, Haiyan & Chen, Jun, 2019. "Short selling and financial reporting quality: Evidence from Chinese AH shares," Journal of Contemporary Accounting and Economics, Elsevier, vol. 15(1), pages 118-130.
    14. Chang, Eric C. & Lin, Tse-Chun & Ma, Xiaorong, 2019. "Does short-selling threat discipline managers in mergers and acquisitions decisions?," Journal of Accounting and Economics, Elsevier, vol. 68(1).
    15. Francis, Bill B. & Samuel, Gilna & Wu, Qiang, 2023. "The impact of short selling on dividend smoothing," Journal of Financial Stability, Elsevier, vol. 65(C).
    16. Bozanic, Zahn & Roulstone, Darren T. & Van Buskirk, Andrew, 2018. "Management earnings forecasts and other forward-looking statements," Journal of Accounting and Economics, Elsevier, vol. 65(1), pages 1-20.
    17. Jiang, Haiyan & Jia, Jing, 2021. "Short selling and future cash flow predictability of capital investment: Evidence from Australia," Journal of Contemporary Accounting and Economics, Elsevier, vol. 17(1).
    18. Cohen, Lee Jeremy & Marcus, Alan J. & Rezaee, Zabihollah & Tehranian, Hassan, 2018. "Waiting for guidance: Disclosure noise, verification delay, and the value-relevance of good-news versus bad-news management earnings forecasts," Global Finance Journal, Elsevier, vol. 37(C), pages 79-99.
    19. John (Jianqiu) Bai & Eunju Lee & Chi Zhang, 2020. "Capital market frictions and human capital investment: Evidence from workplace safety around regulation SHO," The Financial Review, Eastern Finance Association, vol. 55(2), pages 339-360, May.
    20. Fos, Vyacheslav & Appel, Ian & Bulka, Jordan, 2019. "Active Short Selling by Hedge Funds," CEPR Discussion Papers 13788, C.E.P.R. Discussion Papers.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wly:coacre:v:37:y:2020:i:2:p:802-828. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: https://doi.org/10.1111/(ISSN)1911-3846 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.