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Review of Quantitative Finance and Accounting

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02.05.2019 | Original Research

Does accounting conservatism deter short sellers?

verfasst von: Archana Jain, Chinmay Jain, Ashok Robin

Erschienen in: Review of Quantitative Finance and Accounting | Ausgabe 3/2020

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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.

Vorheriger Artikel Shari’ah-compliant Sukuk versus conventional bond announcements: is there a wealth effect?

Nächster Artikel When is cash king? International evidence on the value of cash across the business cycle

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See Diether et al. (2009a) for a study of the uptick rule. See Jain et al. (2012) for a discussion of Rule 201, and Henry and Koski (2010) for a discussion of the SEC Rule 105 of Regulation M.

Our results of a negative relation between short selling and conservatism also hold for the original Khan and Watts (2009) C_Score measure.

For the selection model, we define firm size as total assets following Ahmed and Duellman (2007). For the test model, we define firm size as Market Capitalization following Jain et al. (2013) and this is also consistent with rest of the tables.

We thank FTSE Russell for providing the list of 2004 Russell 3000 index firms.

These results are not tabulated for brevity.

Our measure of accruals differs from Dutta and Patatoukas (2017) in the sense that we have used the traditional method of calculating accruals based on the literature (e.g. Collins et al. (2014) and Ball and Shivakumar (2005) etc.). We measure accruals as the difference of earnings and cash flows from operating activities, whereas, Dutta and Patatoukas (2017) measure accruals as earnings minus free cash flow. .

For other tests in this paper, accruals are scaled by lag value of total assets following Collins et al. (2014).

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Titel: Does accounting conservatism deter short sellers?
verfasst von: Archana Jain
Chinmay Jain
Ashok Robin
Publikationsdatum: 02.05.2019
Verlag: Springer US
Erschienen in: Review of Quantitative Finance and Accounting / Ausgabe 3/2020
Print ISSN: 0924-865X
Elektronische ISSN: 1573-7179
DOI: https://doi.org/10.1007/s11156-019-00819-2

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