TY - JOUR
T1 - Short selling threat and real activity manipulation
T2 - Evidence from a natural experiment
AU - Chen, Huimin (Amy)
AU - Wu, Qiang
N1 - Funding Information:
The authors are grateful for insightful comments from Dennis Caplan (Editor), Derek Johnston (Associate Editor), the anonymous reviewer, seminar participants at the American Accounting Association 2019 Annual Meeting, American Accounting Association 2018 Northeast Region Meeting, Rensselaer Polytechnic Institute, and University of Massachusetts Lowell. Qiang Wu thank the Lally School of Management at Rensselaer Polytechnic Institute for research support through A.C. Lawrence Faculty Fellowship.
Funding Information:
? The authors are grateful for insightful comments from Dennis Caplan (Editor), Derek Johnston (Associate Editor), the anonymous reviewer, seminar participants at the American Accounting Association 2019 Annual Meeting, American Accounting Association 2018 Northeast Region Meeting, Rensselaer Polytechnic Institute, and University of Massachusetts Lowell. Qiang Wu thank the Lally School of Management at Rensselaer Polytechnic Institute for research support through A.C. Lawrence Faculty Fellowship.
Publisher Copyright:
© 2021 Elsevier Ltd
PY - 2021/3
Y1 - 2021/3
N2 - In this paper, we investigate whether and how short selling threat affects real activity manipulation. Using a regulatory experiment (Regulation SHO) that removes short selling restrictions on randomly selected pilot firms, we find that real activity manipulation is significantly reduced for pilot firms in response to increased short selling threat during the experiment period. The reduction effect is stronger for pilot firms with a transparent financial reporting strategy, a high level of negative financial reporting sentiment, and bad news. Our finding confirms short sellers' monitoring effect on opportunistic behavior, even for real activity manipulation that is difficult to detect.
AB - In this paper, we investigate whether and how short selling threat affects real activity manipulation. Using a regulatory experiment (Regulation SHO) that removes short selling restrictions on randomly selected pilot firms, we find that real activity manipulation is significantly reduced for pilot firms in response to increased short selling threat during the experiment period. The reduction effect is stronger for pilot firms with a transparent financial reporting strategy, a high level of negative financial reporting sentiment, and bad news. Our finding confirms short sellers' monitoring effect on opportunistic behavior, even for real activity manipulation that is difficult to detect.
KW - Real earnings management
KW - Regulation SHO
KW - Short selling threat
UR - http://www.scopus.com/inward/record.url?scp=85100033551&partnerID=8YFLogxK
U2 - 10.1016/j.adiac.2021.100514
DO - 10.1016/j.adiac.2021.100514
M3 - Journal article
AN - SCOPUS:85100033551
SN - 0882-6110
VL - 52
JO - Advances in Accounting
JF - Advances in Accounting
M1 - 100514
ER -