Firms with more short‐term institutional shareholders experience significantly more negative abnormal returns at the announcement of seasoned equity offerings. This effect is strong for primary offerings (only firms receive proceeds), but is not present for secondary offerings (firms do not receive any proceeds). Furthermore, a shorter institutional shareholder investment horizon predicts poorer postissue abnormal operating performance and the negative effect of a shorter shareholder horizon is mitigated by higher managerial ownership. My results are consistent with the argument that long‐term shareholders more carefully monitor managerial activities and prevent misuse of the cash flow provided by equity issues.

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The underlying shares of some American Depositary Receipts (ADRs) can be short sold in their home markets, and others cannot. This institutional feature offers a unique opportunity to investigate the relation between short selling and price discovery. We hypothesize and confirm that ADR short selling on a U.S. exchange is more informative when the ADRs’ underlying shares cannot be short sold in the home market. These and related results suggest that short sellers make a significant contribution to price discovery. Short sellers’ trading activity, representing more than 20% of total ADR share volume, increases the benefits of cross‐listing on U.S. exchanges.

We find cross‐sectional evidence that a financially constrained firm with patentable innovation opportunities can use discretionary accruals to reveal information about the firm's prospects and facilitate its financing activities. Specifically, using firms with patents in the National Bureau of Economic Research (NBER) patent database, we find that among financially constrained firms, higher discretionary accruals are associated with more capital being raised, greater research and development (R&D) expenditures, more patents, more patent citations, and better operating performance in the future. These positive relationships are driven by firms that raise equity capital, especially those that raise equity capital from employees.

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