Abstract:Prior research argues that short selling by merger arbitrageurs adds downward pressure to the stock prices of acquiring firms, particularly for firms that use stock financing. We test this hypothesis by examining daily short sale data surrounding merger announcements. Our initial results show that short selling activity surges in response to merger announcements and that abnormal post-announcement short selling is driven by those mergers that use stock financing. This result is consistent, in part, with the pr… Show more
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