Publication Type
Journal Article
Version
publishedVersion
Publication Date
6-2015
Abstract
We hypothesize that short selling has a disciplining role vis-a-vis firm managers that forces them to reduce earnings management. Using firm-level short-selling data for thirty-three countries collected over a sample period from 2002 to 2009, we document a significantly negative relationship between the threat of short selling and earnings management. Tests based on instrumental variable and exogenous regulatory experiments offer evidence of a causal link between short selling and earnings management. Our findings suggest that short selling functions as an external governance mechanism to discipline managers.
Discipline
Finance | Finance and Financial Management
Research Areas
Finance
Publication
Review of Financial Studies
Volume
28
Issue
6
First Page
1701
Last Page
1736
ISSN
0893-9454
Identifier
10.1093/rfs/hhu147
Publisher
Oxford University Press (OUP): Policy F - Oxford Open Option D
Citation
MASSA, Massimo; ZHANG, Bohui; and ZHANG, Hong.
The invisible hand of short selling: Does short selling discipline earnings management?. (2015). Review of Financial Studies. 28, (6), 1701-1736.
Available at: https://ink.library.smu.edu.sg/lkcsb_research/7054
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.
External URL
https://doi.org/10.1093/rfs/hhu147