Accounting Irregularities and Failure to Deliver: An Examination of the Relationship between Naked Short Sales and Restatements

Managerial Finance Vol. 40 Iss 8 pp. 770 - 786

33 Pages Posted: 28 Aug 2015

See all articles by Naomi E. Boyd

Naomi E. Boyd

West Virginia University

Ann Marie Hibbert

West Virginia University - John Chambers College of Business and Economics, Department of Finance

Ivelina Pavlova

University of Houston, Clear Lake

Date Written: August 28, 2014

Abstract

This article examines the relationship between naked short selling and accounting irregularities that cause a firm to issue a restatement. Using the level of fails to deliver as a proxy for naked short selling, we find evidence of increased naked short selling in anticipation, as well as in response to these announcements. Traders who engage in naked short selling are more likely to target larger firms, which is counter to the argument that naked short selling is the result of an inability to borrow the securities. Further, we find that more transparent announcements result in greater levels of naked short selling. The level of abnormal fails to deliver is positively related to both the volatility of the stock’s return after the restatement announcement and the level of institutional ownership before the announcement.

Keywords: fails to deliver; naked short selling; accounting restatements

JEL Classification: G10, G14, G28

Suggested Citation

Boyd, Naomi E. and Hibbert, Ann Marie and Pavlova, Ivelina, Accounting Irregularities and Failure to Deliver: An Examination of the Relationship between Naked Short Sales and Restatements (August 28, 2014). Managerial Finance Vol. 40 Iss 8 pp. 770 - 786, Available at SSRN: https://ssrn.com/abstract=2652287

Naomi E. Boyd

West Virginia University ( email )

PO Box 6025
Morgantown, WV 26506
United States

Ann Marie Hibbert (Contact Author)

West Virginia University - John Chambers College of Business and Economics, Department of Finance ( email )

Morgantown, WV 26506
United States

Ivelina Pavlova

University of Houston, Clear Lake ( email )

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