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Short Selling Pressure, Stock Price Behavior, and Management Forecast Precision: Evidence from a Natural Experiment
Author(s) -
LI YINGHUA,
ZHANG LIANDONG
Publication year - 2015
Publication title -
journal of accounting research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 6.767
H-Index - 141
eISSN - 1475-679X
pISSN - 0021-8456
DOI - 10.1111/1475-679x.12068
Subject(s) - stock price , stock (firearms) , natural experiment , readability , shock (circulatory) , business , economics , monetary economics , computer science , mechanical engineering , paleontology , statistics , mathematics , series (stratigraphy) , engineering , medicine , biology , programming language
Using a natural experiment (Regulation SHO), we show that short selling pressure and consequent stock price behavior have a causal effect on managers’ voluntary disclosure choices. Specifically, we find that managers respond to a positive exogenous shock to short selling pressure and price sensitivity to bad news by reducing the precision of bad news forecasts. This finding on management forecasts appears to be generalizable to other corporate disclosures. In particular, we find that, in response to increased short selling pressure, managers also reduce the readability (or increase the fuzziness) of bad news annual reports. Overall, our results suggest that maintaining the current level of stock prices is an important consideration in managers’ strategic disclosure decisions.