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Short Sellers and Long‐Run Management Forecasts

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  • Xia Chen
  • Qiang Cheng
  • Ting Luo
  • Heng Yue

Abstract

We examine how short sellers affect long‐run management forecasts using a natural experiment (Regulation SHO) that relaxes short‐selling constraints on a group of randomly selected firms (referred to as pilot firms). We find that compared to other firms, the pilot firms issue more long‐run good news forecasts but do not change the frequency of long‐run bad news forecasts. The increase in good news forecasts is greater when the pilot firms have higher‐quality forecasts, greater uncertainty about firm value, or higher manager equity incentives. Overall, these results and the results of additional analyses indicate that the reduction in short‐selling constraints and the increase in short‐selling threat induce managers to enhance disclosures through more long‐run good news forecasts to discourage short sellers. Vendeurs à découvert et prévisions à long terme des dirigeants Les auteurs analysent les mécanismes de l'influence des vendeurs à découvert sur les prévisions à long terme des dirigeants, à l'aide d'une expérience naturelle (le Règlement SHO) d'allègement des contraintes relatives aux ventes à découvert pour un groupe de sociétés sélectionnées aléatoirement (appelées sociétés pilotes). Ils constatent que, comparativement aux autres sociétés, les sociétés pilotes publient davantage de prévisions favorables à long terme sans toutefois modifier la fréquence de publication des prévisions défavorables à long terme. La multiplication des prévisions favorables est plus importante dans le cas des sociétés pilotes qui se caractérisent par des prévisions de qualité supérieure, une plus grande incertitude quant à la valeur de l'entreprise ou une plus grande proportion de la rémunération des dirigeants sous forme d'actions. Dans l'ensemble, ces résultats et ceux d'analyses supplémentaires révèlent que l'allègement des contraintes relatives aux ventes à découvert et l'intensification de la menace de ventes à découvert poussent les dirigeants à améliorer l'information communiquée en multipliant les prévisions favorables à long terme, afin de freiner les ventes à découvert.

Suggested Citation

  • Xia Chen & Qiang Cheng & Ting Luo & Heng Yue, 2020. "Short Sellers and Long‐Run Management Forecasts," Contemporary Accounting Research, John Wiley & Sons, vol. 37(2), pages 802-828, June.
    • Handle: RePEc:wly:coacre:v:37:y:2020:i:2:p:802-828
    DOI: 10.1111/1911-3846.12554
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