When Blockholders Meet Short Sellers: Two Forms of Governance

Abstract

Using a natural experiment of short selling and a unique blockholder dataset from the U.S. market, this paper investigates how short selling affects blockholder governance. Although the size of blockholders is reduced with the high propensity for short selling, blockholders tend to raise more activism events, propose more activism goals to discipline managers, or provide suggestions for business operations. Further analyses reveal that blockholders that choose to stay in the firm with increasing short selling can improve the firm’s value. These detailed purposes of activism lead to better firm performance compared with other active blockholders that focus on investment goals.

Keywords: Short Selling, Blockholder Activism, Passive Blockholders, Firm Performance

JEL Classification: G23, G32, G34