Affiliation:
1. Department of Economics and Finance University of North Georgia Oakwood Georgia USA
2. Department of Finance Clemson University Clemson South Carolina USA
Abstract
AbstractWe examine the causal effect of short‐selling on a firm's annual report readability using regulation SHO, which relaxes short‐sale constraints for a random sample of pilot stocks. Pilot firms produce significantly less readable annual reports than nonpilot firms during the experiment period. Our results are more pronounced for firms that receive less investor attention and those with poorer growth prospects. Furthermore, pilot firms increase the use of uncertainty words in annual reports during the experiment period. Our results suggest that firms produce less transparent financial disclosures that are more costly for investors to comprehend when short‐sale constraints are less rigorous.
Subject
Economics and Econometrics,Finance