Short and Distort

Mitts, Joshua

doi:10.2139/ssrn.3198384

Cited by 5 publications

(9 citation statements)

References 29 publications

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“…After adding variables on ownership structure in column 3, we find a significant and positive association between anonymous authors’ coverage and retail ownership, which suggests that anonymous authors analyze firms that are potentially susceptible to stock price manipulations. We also observe that anonymous articles are positively correlated with short interest and insider ownership; these results are in line with the findings in Mitts [2020] as well as the SEC's investigations about firm insiders exploiting anonymity on crowdsourced platforms (SEC [2017a]). We note that the effect of firm size is subsumed by the firm's ownership structure in column 3, suggesting anonymous authors are more concerned about the potential readership of articles (i.e., shareholders) rather than the firm size per se.…”

Section: Resultssupporting

confidence: 90%

“…That is, stock promoters secretly paid by a given company may lack independence and impartiality, but they are not necessarily deceptive in terms of the article's content. Most closely related to our study is Mitts [2020], who studies the opportunistic behaviors of short‐selling pseudonymous authors. He documents that pseudonymous authors who write articles in SA's “short idea” category generate sharp price drops and reversals in target firms.…”

Section: Literature Reviewmentioning

confidence: 99%

“…First, our sample covers all articles written on SA encompassing both long and short opinions, whereas Mitts [2020] only focuses on articles tagged as “short ideas.” Articles with this tagging make up roughly 6% of the population of articles written on the platform. Second, Mitts [2020] primarily investigates short sellers and option traders as possible actors exploiting pseudonyms on SA; however, we highlight firm insiders as a different category of market participant with an incentive to post anonymously on SA (see online appendix table ). Third, we investigate the firm attributes that draw in anonymous articles as well as the linguistic features of the article content (subsections 4.1 and 5.1).…”

Section: Literature Reviewmentioning

confidence: 99%

See 2 more Smart Citations

Anonymous Equity Research

Dyer

Kim

2021

J of Accounting Research

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Crowdsourced financial information platforms often allow content contributors to publish equity research anonymously. This study examines whether investors value or discount information in anonymous equity research. In the short window around research releases, we find that investors’ stock price reaction to anonymous research is muted in comparison to nonanonymous research. Consistent with credibility concerns influencing investor response, we document that this discount to anonymous research dissipates as the monitoring of content contributors intensifies and as authors develop a reputation for high‐quality reporting. In addition, we perform a content analysis on the research reports and find that the muted market reaction to anonymous equity research is robust to controlling for textual attributes of information content, further supporting our inference that investors’ are concerned about the credibility of anonymous equity research.

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Section: Resultssupporting

confidence: 90%

Section: Literature Reviewmentioning

confidence: 99%

Section: Literature Reviewmentioning

confidence: 99%

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Anonymous Equity Research

Dyer

Kim

2021

J of Accounting Research

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“…Benabou and Laroque [1992] show that the reporters' optimal strategy involves issuing false reports with nonzero probability. Mitts [2020] provides empirical evidence that anonymous short-oriented posting on chat boards contain such distorted reports, which aim to profit from the resulting temporary price declines.…”

Section: Target Firm Responses To Activist Short Sellersmentioning

confidence: 99%

“…Making false statements in a written research report is risky for short sellers, as it gives rise to potential securities fraud liability under SEC rule 10b-5. 1 Short sellers can also be sued for defamation by target firms (e.g., Lamont [2012], Mitts [2020]). Successful defamation claims require the target firm to prove four elements: that the short seller made a false statement purporting to be fact, communicated that false statement to a third party, that the false statement was negligent or malicious, and that the target firm suffered damages as a result.…”

Section: Target Firm Responses To Activist Short Sellersmentioning

confidence: 99%

Responding to Activist Short Sellers: Allegations, Firm Responses, and Outcomes

Brendel¹,

Ryans

2021

J of Accounting Research

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This study provides descriptive evidence on how firms respond to activist short seller reports and how these responses are associated with outcomes for the targeted firms. We show that the frequency of these reports has grown substantially in recent years. Although we find that firms respond only 31% of the time, this rate increases substantially when the report is accompanied by significantly negative abnormal returns and when the report contains new evidence. Not responding is associated with a less negative stock price response at report release and fewer adverse outcomes. Firms that launch internal investigations following the report release have significantly higher subsequent rates of stock exchange delisting and SEC enforcement actions, and lower rates of being acquired. Overall, our results highlight the impact of activist short sellers on target firms and that firm responses are associated with material outcomes.

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Deploying Narrative Economics to Understand Financial Market Dynamics: An Analysis of Activist Short Sellers' Rhetoric*

Paugam

Stolowy

Gendron

2021

Contemporary Accting Res

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We investigate how activist short sellers (AShSs) expose publicly listed firms in an increasingly popular form of “research reports” openly denouncing alleged frauds, flawed business models, accounting irregularities, and wrongdoings. We focus on six AShSs that issued research reports that often led to a strong negative market reaction. Our empirical analysis exploits both qualitative and quantitative methods for a comprehensive data set of 383 research reports targeting 171 unique firms, and 3 firsthand interviews with AShSs. Drawing on Aristotle's rhetoric, we first examine how AShSs use narratives in striving to convince other investors that the target firms are overvalued. Specifically, we search the documents produced by AShSs for stylized narratives related to credibility‐based (ethos), emotions‐based (pathos), and logic‐based (logos) rhetorical strategies. To assess the impact of these strategies, we examine the extent to which the AShSs' rhetorical strategies resonate in 3,665 press articles. As expected, the press often refers to logos‐based arguments. Interestingly, the press also frequently brings up pathos‐based and ethos‐based statements. Considering the importance of the press in shaping investors' opinions, our study points to AShSs' narratives playing a major role in policing financial markets. Theoretically, we show that AShSs, as dissenting market participants, produce narratives that go beyond the language of formal rationality—as they strive to reveal new information and frame it persuasively, in order to destabilize the extent of trustworthiness surrounding target firms.

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Short and Distort

Cited by 5 publications

References 29 publications

Anonymous Equity Research

Anonymous Equity Research

Responding to Activist Short Sellers: Allegations, Firm Responses, and Outcomes

Deploying Narrative Economics to Understand Financial Market Dynamics: An Analysis of Activist Short Sellers' Rhetoric*

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