IDEAS home Printed from https://ideas.repec.org/a/bla/jbfnac/v52y2025i1p261-294.html
   My bibliography  Save this article

The impact of short‐selling threats on credit rating performance and usage: Evidence from a natural experiment

Author

Listed:
  • Mei Cheng
  • Eliza X. Zhang

Abstract

Using Regulation SHO as a controlled experiment, we examine the impact of short‐selling threats on credit rating performance and credit rating usage in debt contracts. We find that when short‐selling constraints are removed for pilot firms, rating accuracy increases, but rating stability decreases for these firms relative to non‐pilot firms. This result suggests that short‐selling threats push rating agencies to enhance rating accuracy at the cost of rating stability. We also find less rating usage in debt contracts for pilot firms than for non‐pilot firms when short‐selling constraints are removed for pilot firms, suggesting that in the presence of short‐selling threats, debt contracting parties emphasize rating stability over rating accuracy. Overall, our study informs academics, practitioners and regulators about short sellers’ disciplining effect on rating agencies and provides novel evidence on the rating property trade‐off and its implication for rating usage.

Suggested Citation

  • Mei Cheng & Eliza X. Zhang, 2025. "The impact of short‐selling threats on credit rating performance and usage: Evidence from a natural experiment," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 52(1), pages 261-294, February.
    • Handle: RePEc:bla:jbfnac:v:52:y:2025:i:1:p:261-294
    DOI: 10.1111/jbfa.12807
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/jbfa.12807
    Download Restriction: no
    File URL: https://libkey.io/10.1111/jbfa.12807?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:jbfnac:v:52:y:2025:i:1:p:261-294. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: http://www.blackwellpublishing.com/journal.asp?ref=0306-686X .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.