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The Information Content of Short Selling Around Close Supply Chain Relationships
Author(s) -
Evans Jocelyn D.,
Outlaw Dominique G.
Publication year - 2018
Publication title -
financial review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.621
H-Index - 47
eISSN - 1540-6288
pISSN - 0732-8516
DOI - 10.1111/fire.12163
Subject(s) - supply chain , earnings , business , financial distress , stock (firearms) , monetary economics , retained earnings , economics , finance , financial system , marketing , mechanical engineering , debt , engineering
Close supply chain relationships are sometimes detrimental to the partnering firms, and short sellers recognize this before the rest of the market. Suppliers and customers that are in linked, close supply chain relationships have higher short interest on average. Further, higher short interest increases the likelihood of large, linked customers reporting negative earnings surprises, whereas suppliers with high short interest are more likely to report negative earnings surprises, irrespective of the supply chain structure. Short selling is informative to capital markets because these suboptimal relationships eventually lead to dependent suppliers being delisted from a stock exchange for financial distress reasons.