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Why Muddy the Water? Short selling and the disclosure of proprietary information

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  • Wu, Xiting
  • Jiang, Haiyan
  • Lin, Hui
  • You, Jiaxing

Abstract

The conventional wisdom of voluntary disclosure literature is that the major factor preventing firms from disclosing customer-related information is firms' concern for proprietary costs. However, non-disclosure may also happen when firms have bad news to hide and are concerned about short sellers using customer information to verify bad news about the firms. By implementing a difference-in-differences research design against the backdrop of the deregulation of short selling in China, we find that increased short-selling pressure discourages firms from disclosing the identities of major customers. The findings also reveal consistent evidence supporting the bad news hoarding hypothesis rather than the proprietary cost hypothesis. Overall, our study provides an alternative explanation for firms’ lack of disclosure of customer information.

Suggested Citation

  • Wu, Xiting & Jiang, Haiyan & Lin, Hui & You, Jiaxing, 2023. "Why Muddy the Water? Short selling and the disclosure of proprietary information," The British Accounting Review, Elsevier, vol. 55(4).
    • Handle: RePEc:eee:bracre:v:55:y:2023:i:4:s0890838923000379
    DOI: 10.1016/j.bar.2023.101204
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    JEL classification:

    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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