The Effect of Short-Sale Restrictions on Corporate Managers

Baixiao Liu, John J. McConnell and Andrew Schrowang ()
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Baixiao Liu: HSBC Business School, Peking University, University Town, Nanshan District, Shenzhen 518055, China
John J. McConnell: Krannert Graduate School of Management, Purdue University, 403 West State Street, West Lafayette, IN 47907, USA
Andrew Schrowang: Department of Finance, College of Business, Florida State University, 821 Academic Drive, Tallahassee, FL 32306, USA

JRFM, 2023, vol. 16, issue 11, 1-23

Abstract: This paper studies the effect of short selling on corporate managers from 2002 through 2010. We examine how the exemption of short-sale uptick tests due to the Regulation SHO pilot program affects managers’ decisions to abandon value-reducing acquisition attempts. We find that when deciding whether to abandon value-reducing acquisition attempts during the program, managers of pilot firms, whose stocks are less subject to short-selling impediments, are more sensitive to stock price changes than managers of nonpilot firms. We find no difference in managers’ sensitivity prior to nor post SHO. These results indicate that, despite their dislike of short sellers, managers believe that the level of informativeness from capital markets is superior when short sellers are less impeded.

Keywords: short selling; Regulation SHO; corporate acquisitions; managerial learning (search for similar items in EconPapers)
JEL-codes: C E F2 F3 G (search for similar items in EconPapers)
Date: 2023
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