Does accounting conservatism deter short sellers?

Archana Jain (), Chinmay Jain () and Ashok Robin ()
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Archana Jain: Rochester Institute of Technology
Chinmay Jain: University of Ontario Institute of Technology
Ashok Robin: Rochester Institute of Technology

Review of Quantitative Finance and Accounting, 2020, vol. 54, issue 3, No 11, 1075-1100

Abstract: Abstract We examine the impact of the corporate information environment on short selling by testing the relationship between short interest and accounting conservatism. Short interest, the total number of shares shorted and not yet covered, is a widely used measure of short selling activity. Accounting conservatism, on the other hand, represents the timelier recognition of bad versus good news in earnings, and is widely acknowledged as a vital accounting property and a contributor to transparency and efficient contracting in firms. We reason that conservatism lowers information asymmetry and decreases expected returns to short sellers and hypothesize a negative relation between short interest and measures of conservatism. Our results are consistent with this hypothesis and we verify findings using a variety of conservatism measures including those indicated in the recent literature.

Keywords: Short selling; Conservatism; Investor behavior (search for similar items in EconPapers)
JEL-codes: G1 M41 (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1007/s11156-019-00819-2

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