Short selling pressure, stock price behavior, and management forecast precision: Evidence from a natural experiment

Yinghua Li, Liandong Zhang

Research output: Contribution to journalArticle

35 Citations (Scopus)

Abstract

Using a natural experiment (Regulation SHO), we show that short selling pressure and consequent stock price behavior have a causal effect on managers' voluntary disclosure choices. Specifically, we find that managers respond to a positive exogenous shock to short selling pressure and price sensitivity to bad news by reducing the precision of bad news forecasts. This finding on management forecasts appears to be generalizable to other corporate disclosures. In particular, we find that, in response to increased short selling pressure, managers also reduce the readability (or increase the fuzziness) of bad news annual reports. Overall, our results suggest that maintaining the current level of stock prices is an important consideration in managers' strategic disclosure decisions.

Original languageEnglish (US)
Pages (from-to)79-117
Number of pages39
JournalJournal of Accounting Research
Volume53
Issue number1
DOIs
StatePublished - Mar 1 2015

Fingerprint

Natural experiment
Management forecasts
Managers
Stock prices
Short selling
News
Disclosure
Exogenous shocks
Causal effect
Price sensitivity
Readability
Corporate disclosure
Annual reports
Voluntary disclosure

Keywords

  • Annual report readability
  • Corporate disclosure
  • Forecast precision
  • Managerial incentives
  • Regulation SHO
  • Short selling

ASJC Scopus subject areas

  • Finance
  • Accounting
  • Economics and Econometrics

Cite this

Short selling pressure, stock price behavior, and management forecast precision : Evidence from a natural experiment. / Li, Yinghua; Zhang, Liandong.

In: Journal of Accounting Research, Vol. 53, No. 1, 01.03.2015, p. 79-117.

Research output: Contribution to journalArticle

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