Insider sales under the threat of short sellers: New hypothesis and new tests

• Main Authors: Kemin Wang, WANG, Rencheng, Wei, K. C. John, Zhang, Bohui, Zhou, Yi
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2022
• Subjects: Regulation SHO; short selling; insider trading; disciplining hypothesis; crowding-out hypothesis; Accounting; Finance and Financial Management
• Online Access: https://ink.library.smu.edu.sg/soa_research/1925; https://ink.library.smu.edu.sg/context/soa_research/article/2952/viewcontent/paper_635.pdf
• Institution: Singapore Management University

Using the Regulation SHO program as a quasi-experiment, we document that the threat of short selling has a negative effect on the volume of opportunistic insider selling and a positive effect on its profitability for each transaction. These effects are stronger among firms with higher litigation risk, greater media coverage, and executives who have more of their firms' stock-related holdings. We further find robust evidence when we extend the analyses to short selling deregulations in the Chinese and Hong Kong stock exchanges. Overall, our findings suggest that short sellers play a disciplinary role in opportunistic insider selling.