Do Short Sellers Target Firms with Poor Earnings Quality? Evidence from Earnings Restatements

Desai, Hemang; Krishnamurthy, Srinivasan; Venkataraman, Kumar

doi:10.2139/ssrn.633283

Cited by 84 publications

(140 citation statements)

References 21 publications

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“…In particular, we discuss front running, short selling, insider trading and price pressure. Other studies suggest short sellers anticipate adverse news in earnings announcements (Christophe, Ferri and Angel, 2004) and earnings restatements (Desai, Krishnamurthy and Venkataraman, 2006), consistent with short sellers being informed.…”

Section: Related Literaturementioning

confidence: 83%

Do Short Sellers Front-Run Insider Sales?

Khan

Lü

2013

The Accounting Review

113

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We find evidence of significant increases in short sales immediately prior to large insider sales, consistent with information leakage and front-running. We examine a number of alternative explanations that the increase in short sales is driven by public information about the firm or about the impending insider sale, but the evidence is inconsistent with these explanations. The result has implications for the enforcement of insider information regulations, and for timely disclosure of short sales information by stock exchanges.JEL Classification Code: G10, G14, G18, G30

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Section: Related Literaturementioning

confidence: 83%

Do Short Sellers Front-Run Insider Sales?

Khan

Lü

2013

The Accounting Review

113

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“…Diamond and Verrecchia (1987) show theoretically that a market with short-sale constraints incorporates information more slowly than a market in which short sales are not restricted. Empirical evidence that short sellers contribute to market efficiency and market quality can be found in, among others, Dechow, Hutton, Meulbroek, and Sloan (2001), Desai, Krishnamurthy, and Kumar (2006), Bris, Goetzmann, and Zhu (2007), Chang, Cheng, and Yu (2007), Boehmer, Jones, and Zhang (2008), Saffi and Sigurdsson (2011), and Boehmer and Wu (2013). Short positions are important hedging tools in a number of common trading strategies (e.g., hedging options, convertible bonds, or market risk in long-short strategies).…”

Section: Introductionmentioning

confidence: 99%

Predatory Short Selling

Brunnermeier

Oehmke

2013

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Financial institutions may be vulnerable to predatory short selling. When the stock of a financial institution is shorted aggressively, leverage constraints imposed by short-term creditors can force the institution to liquidate long-term investments at fire sale prices. For financial institutions that are sufficiently close to their leverage constraints, predatory short selling equilibria co-exist with no-liquidation equilibria (the vulnerability region) or may even be the unique equilibrium outcome (the doomed region). Increased coordination among short sellers expands the doomed region, where liquidation is the unique equilibrium. Our model provides a potential justification for temporary restrictions on short selling of vulnerable institutions and can be used to assess recent empirical evidence on short-sale bans.

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“…Beneish (1999) fi nds that the managers of restating fi rms are more likely to sell equity holdings and exercise stock appreciation rights. Desai, Krishnamurthy, and Venkataraman (2006) fi nd that restatements are preceded by a run-up in short selling, and this short selling is more intense when accounting accruals appear to be infl ated, suggesting that some market participants are able to anticipate the market's response to what they see is suspect fi nancial reporting. Core (2001) notes that it is diffi cult to infer causation from empirical studies of restatements because the structure of managerial compensation, corporate governance, and fi nancial structure are determined jointly with misreporting.…”

Section: Empirical Studies Of Misreportingmentioning

confidence: 99%