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Short Selling and Firm Operating Performance
Author(s) -
Deshmukh Sanjay,
Gamble Keith Jacks,
Howe Keith M.
Publication year - 2014
Publication title -
financial management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.647
H-Index - 68
eISSN - 1755-053X
pISSN - 0046-3892
DOI - 10.1111/fima.12081
Subject(s) - decile , stock (firearms) , short interest ratio , stock price , monetary economics , economics , business , interest rate , sample (material) , control (management) , econometrics , mechanical engineering , paleontology , statistics , context (archaeology) , chemistry , mathematics , chromatography , series (stratigraphy) , engineering , biology , management
While it is well known that short selling predicts future negative stock price performance, it has not been established whether short selling predicts future negative operating performance. We find that firms in the top decile of increases in short interest (an increase of about four percentage points) experience a 21% subsequent decline in operating performance relative to matched control firms. The greater the increase in short interest, the larger the decline in operating performance. The results are robust to alternative performance measures and to sample splits based on firm size. These results suggest that short interest may reflect private information about firm fundamentals rather than other factors that may drive stock price changes.