Does Accounting Conservatism Deter Short Sellers?

43 Pages Posted: 6 Jul 2014 Last revised: 19 Mar 2017

See all articles by Archana Jain

Archana Jain

Rochester Institute of Technology

Chinmay Jain

SUNY Geneseo

Ashok Robin

Rochester Institute of Technology (RIT) - E. Philip Saunders College of Business

Date Written: July 26, 2017

Abstract

We examine the impact of the corporate information environment on short selling by testing the relationship between short interest and accounting conservatism. Short interest, the total number of shares shorted and not yet covered, is a widely used measure of short selling activity. Accounting conservatism, on the other hand, represents the timelier recognition of bad versus good news in earnings, and is widely acknowledged as a vital accounting property and a contributor to transparency and efficient contracting in firms. We reason that conservatism lowers information asymmetry and decreases expected returns to short sellers and hypothesize a negative relation between short interest and measures of conservatism. Our results are consistent with this hypothesis and we verify findings using a variety of conservatism measures including those indicated in the recent literature (e.g., Dutta and Patatoukas 2017).

Keywords: Short selling, conservatism, Investor behavior

JEL Classification: G1, M41

Suggested Citation

Jain, Archana and Jain, Chinmay and Robin, Ashok, Does Accounting Conservatism Deter Short Sellers? (July 26, 2017). Available at SSRN: https://ssrn.com/abstract=2462770 or http://dx.doi.org/10.2139/ssrn.2462770

Archana Jain

Rochester Institute of Technology ( email )

Rochester, NY 14623
United States

Chinmay Jain (Contact Author)

SUNY Geneseo ( email )

1 College Cir
South Hall
Geneseo, NY NY 14618
United States

Ashok Robin

Rochester Institute of Technology (RIT) - E. Philip Saunders College of Business ( email )

105 Lomb Memorial Dr.
Rochester, NY 14623
United States

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