Governance and Short Sales

Daniel Dupuis and Lawrence Kryzanowski

Finance Working Papers from School of Business Administration, American University of Sharjah

Abstract: This paper investigates the relationship between short sales and governance. We argue that short sales are reversely linked to the overall level of corporate governance of a firm and that sellers react contemporaneously to changes in such governance. Our results show that short traders may also be able to forecast or influence changes in corporate governance and adjust their portfolios accordingly prior to the said changes. This reaction is asymmetric, with a pronounced increase in short positions for actual and anticipated negative changes in governance and a more subdued repurchase of shorted stock for positive expectations. We provide empirical evidence consistent with the notion that short sellers are informed investors and can generate a profit from corporate events by using analytical prowess or manipulative practices such as the record-date capture technique.

Keywords: Short sales; corporate governance (search for similar items in EconPapers)
JEL-codes: D53 G11 G14 G30 G34 (search for similar items in EconPapers)
Pages: 50 pages
New Economics Papers: this item is included in nep-cfn
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