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Short interest as a signal to issue equity

Don M. Autore, Irena Hutton, Danling Jiang and Dominque G. Outlaw

Journal of Corporate Finance, 2018, vol. 48, issue C, 797-815

Abstract: We find that the level of short interest in a firm's stock significantly predicts future seasoned equity offers (SEOs). The probability of an SEO announcement increases by 34% (decreases by 49%) for firms in the top (bottom) quintile of short interest. We identify a causal impact of short interest on SEO issuance using a novel instrument for short interest based on future litigation filings in close geographical proximity to hedge fund centers. Our findings suggest that corporate decisions can be triggered by the aggregate trading activity of sophisticated outside investors.

Keywords: Short interest; Seasoned equity offers; Litigation; Trigger effect; Feedback effect (search for similar items in EconPapers)
Date: 2018
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Handle: RePEc:eee:corfin:v:48:y:2018:i:c:p:797-815