Short sellers and long-run management forecasts

• Main Authors: CHEN, Xia, CHENG, Qiang, LUO, Ting, YUE, Heng
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2020
• Subjects: Short Sales; Corporate Disclosures; Management Forecasts; Accounting; Corporate Finance
• Online Access: https://ink.library.smu.edu.sg/soa_research/1874; https://ink.library.smu.edu.sg/cgi/viewcontent.cgi?article=2901&context=soa_research
• Institution: Singapore Management University

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.