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Third-party consequences of short-selling threats: The case of auditor behavior

Ole-Kristian Hope, Danqi Hu and Wuyang Zhao

Journal of Accounting and Economics, 2017, vol. 63, issue 2, 479-498

Abstract: This study examines how short-selling threats affect auditors. During 2005–2007, the SEC ordered a pilot program in which one-third of the Russell 3000 index firms were arbitrarily chosen to be exempted from short-sale price tests. As a result, these stocks faced significantly higher short-selling threats. We implement a difference-in-differences test with firm fixed effects to show that auditors react to the increased threats and charge higher audit fees to the pilot firms. Further, we find that the impact only exists when auditors are concerned with the bankruptcy risk or when managers are less likely disciplined by short sellers.

Keywords: Short selling; Audit fees; Regulation SHO; Bankruptcy risk; CEO overconfidence (search for similar items in EconPapers)
Date: 2017
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Journal of Accounting and Economics is currently edited by J. L. Zimmerman, S. P. Kothari, T. Z. Lys and R. L. Watts

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