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Short selling threat and corporate financing decisions

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  • Gong, Rong

Abstract

This paper presents evidence that firms choose conservative financial policies to mitigate firms’ exposure to short selling threat. I exploit changes in the regulation of short selling constraints as an exogenous shock to the short selling threat borne by firms. I find that higher short selling threat leads to decreased corporate leverage, particularly for firms facing greater expected short selling threats, for firms with higher financial distress risks, and for firms whose managers are more risk averse. The findings suggest that short selling threats have a significant impact on corporate financing decisions through changes in the costs of financial distress.

Suggested Citation

  • Gong, Rong, 2020. "Short selling threat and corporate financing decisions," Journal of Banking & Finance, Elsevier, vol. 118(C).
    • Handle: RePEc:eee:jbfina:v:118:y:2020:i:c:s0378426620301199
    DOI: 10.1016/j.jbankfin.2020.105853
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    8. Do, Hung X. & Nguyen, Nhut H. & Nguyen, Quan M.P., 2022. "Financial leverage and stock return comovement," Journal of Financial Markets, Elsevier, vol. 60(C).

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