Short selling pressure, stock price behavior, and management forecast precision : Evidence from a natural experiment

Research output: Journal Publications and ReviewsRGC 21 - Publication in refereed journalpeer-review

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Original languageEnglish
Pages (from-to)79-117
Journal / PublicationJournal of Accounting Research
Issue number1
Publication statusPublished - 1 Mar 2015


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.

Research Area(s)

  • Annual report readability, Corporate disclosure, Forecast precision, Managerial incentives, Regulation SHO, Short selling