Abstract
AbstractThis paper investigates the informativeness of short sales on detecting firm investment inefficiency. Neoclassical and agency theory suggest that investment inefficiency destroys firm value by allocating resources to less-valued uses. This paper finds that short-sellers adjust their short positions before the announcement of a financial statement, to use their information advantage on firm investment inefficiency. The relation between the short positions in a firm and its future investment inefficiency is both statistically and economically significant, and robust to a broad set of control variables. Subsample analyses show that the informativeness of short sales positions about future investment inefficiency is concentrated on overinvestment firms, firms with little board independence, and firms with low CEO incentive pay.
Publisher
Springer Science and Business Media LLC
Reference71 articles.
1. Amir, E., Guan, Y., Livne, G.: The association of R &D and capital expenditures with subsequent earnings variability. J. Bus. Finance Account. 34, 222–246 (2007)
2. Armstrong, C.S., Jagolinzer, A.D., Larcker, D.F.: Chief executive officer equity incentives and accounting irregularities. J. Account. Res. 48, 225–271 (2010)
3. Baber, W.R., Fairfield, P.M., Haggard, J.A.: The effect of concern about reported income on discretionary spending decisions: the case of research and development. Account. Rev. 66, 818–829 (1991)
4. Balakrishnan, K., Core, J.E., Verdi, R.S.: The relation between reporting quality and financing and investment: evidence from changes in financing capacity. J. Account. Res. 52, 1–36 (2014)
5. Bartov, E., Marra, A., Momenté, F.: Corporate social responsibility and the market reaction to negative events: evidence from inadvertent and fraudulent restatement announcements. Account. Rev. 96, 81–106 (2021)