The Influence of Short Selling on Negative Press Coverage of Firms

Robert Bushman () and Jedson Pinto ()
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Robert Bushman: Kenan-Flagler Business School, University of North Carolina at Chapel Hill, Chapel Hill, North Carolina 27599
Jedson Pinto: Naveen Jindal School of Management, University of Texas at Dallas, Richardson, Texas 75080

Management Science, 2024, vol. 70, issue 3, 1924-1942

Abstract: We hypothesize that after a relaxation of short selling constraints, an escalation in short selling activity will heighten incentives for short sellers to accelerate price discovery by revealing their negative information. Consistent with this conjecture, we find that the overall sentiment of media coverage tilts significantly more negative for pilot relative to control firms following exogenous relief of short sale constraints. We find a more pronounced effect for media-initiated articles relative to firm-initiated press releases. Further, following abnormal increases in short interest, there is a significantly greater increase in negative news flow for pilot relative to nonpilot firms. Finally, we find that stock returns of firms with lower short selling constraints become significantly more sensitive to negative news reports.

Keywords: short selling; news media; negative news; securities regulation (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:70:y:2024:i:3:p:1924-1942

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