Short selling threat and real activity manipulation: Evidence from a natural experiment

Chen, Huimin (Amy) and Qiang Wu

Advances in accounting, 2021, vol. 52, issue C

Abstract: In this paper, we investigate whether and how short selling threat affects real activity manipulation. Using a regulatory experiment (Regulation SHO) that removes short selling restrictions on randomly selected pilot firms, we find that real activity manipulation is significantly reduced for pilot firms in response to increased short selling threat during the experiment period. The reduction effect is stronger for pilot firms with a transparent financial reporting strategy, a high level of negative financial reporting sentiment, and bad news. Our finding confirms short sellers' monitoring effect on opportunistic behavior, even for real activity manipulation that is difficult to detect.

Keywords: Short selling threat; Real earnings management; Regulation SHO (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:advacc:v:52:y:2021:i:c:s088261102100002x

DOI: 10.1016/j.adiac.2021.100514

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