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Does accounting conservatism deter short sellers?

Author

Listed:
  • Archana Jain

    (Rochester Institute of Technology)

  • Chinmay Jain

    (University of Ontario Institute of Technology)

  • Ashok Robin

    (Rochester Institute of Technology)

Abstract

We examine the impact of the corporate information environment on short selling by testing the relationship between short interest and accounting conservatism. Short interest, the total number of shares shorted and not yet covered, is a widely used measure of short selling activity. Accounting conservatism, on the other hand, represents the timelier recognition of bad versus good news in earnings, and is widely acknowledged as a vital accounting property and a contributor to transparency and efficient contracting in firms. We reason that conservatism lowers information asymmetry and decreases expected returns to short sellers and hypothesize a negative relation between short interest and measures of conservatism. Our results are consistent with this hypothesis and we verify findings using a variety of conservatism measures including those indicated in the recent literature.

Suggested Citation

  • Archana Jain & Chinmay Jain & Ashok Robin, 2020. "Does accounting conservatism deter short sellers?," Review of Quantitative Finance and Accounting, Springer, vol. 54(3), pages 1075-1100, April.
    • Handle: RePEc:kap:rqfnac:v:54:y:2020:i:3:d:10.1007_s11156-019-00819-2
    DOI: 10.1007/s11156-019-00819-2
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    More about this item

    Keywords

    Short selling; Conservatism; Investor behavior;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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