Short selling threat and real activity manipulation: Evidence from a natural experiment

Huimin (Amy) Chen, Qiang Wu

Research output: Journal article publicationJournal articleAcademic researchpeer-review

Abstract

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.

Original languageEnglish
Article number100514
JournalAdvances in Accounting
Volume52
DOIs
Publication statusPublished - Mar 2021

Keywords

  • Real earnings management
  • Regulation SHO
  • Short selling threat

ASJC Scopus subject areas

  • Accounting
  • Finance

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