Does short-selling threat discipline managers in mergers and acquisitions decisions?

Short selling and labor investment efficiency: evidence from the Chinese stock market

“…First, short sellers help incorporate information about future investment and growth opportunities, future demand for products and services, and financing opportunities into stock prices, which may help managers make more efficient labor investment decisions (Pinnuck and Lillis, 2007; Drake et al ., 2011; Boehmer and Wu, 2013; Xiong et al ., 2017). Second, short sellers can discipline managers and uncover their misconduct, such as empire‐building (Massa et al ., 2015; Chang et al ., 2019). Therefore, firms are less likely to over‐hire or under‐fire employees to run unprofitable projects.…”

The influence of the deregulation of short‐selling on related‐party transactions: Evidence from China

“…With sufficient financial literacy, short-sellers are able to untangle the genuine economic implications of the beneficial or detrimental RPTs. In line with short-selling's disciplining function, as suggested in recent studies (e.g., Chang et al, 2019;Fang et al, 2016;Massa et al, 2015), it could be argued that the presence of short-sellers in the markets disciplines manager's RPT conduct, in which managers are induced to carry out more beneficial RPTs to lower transaction costs and maximize shareholder values, while they shun detrimental RPTs as a result of short-sellers' monitoring threat.…”

“…Regarding other aspects of managerial decision-making, Gilchrist et al (2005) and Grullon et al (2015) reveal that short-selling constraints, as well as the removal of these constraints, alter a firm's conventional investment activities (such as ordinary capital expenditures) and financing decisions. Chang et al (2019) reveal that short-selling can regulate managerial empire-building via mergers and acquisitions, in which the acquirers with increased lendable shares tend to have greater announcement returns. DeAngelis et al (2016) demonstrate that firms facing high pressure from short-sellers are more likely to reduce managerial exposure to downside risk by granting relatively more stock options to top executives and adopting new anti-takeover provisions.…”

“…A burgeoning stream of literature has significantly contributed toward providing empirical evidence of the real effects of financial markets on economic activities (Goldstein & Guembel, 2008;Subrahmanyam & Titman, 1999). In particular, past studies have revealed the disciplinary role of short-sales and their effects on managerial and thirdparty decision-making (Chang et al, 2019;DeAngelis et al, 2016;Fang et al, 2016;Grullon et al, 2015;Massa et al, 2015). We contribute toward this stream of research by exploring the real effect of short-selling on related-party transactions (RPTs).…”

The Impact of Short Selling on Firms: An Empirical Literature Review

“…This result shows that the effectiveness of the disciplinary force of short selling depends on the extent to which managers are worried about their job security, which reinforces the disciplinary interpretation. Based on similar data, Chang et al (2019) focused their investigation on the governance effect of the threat of short selling on mergers and acquisitions, an important corporate real investment decision. They confirmed that acquirers with higher lending supply have higher announcement returns.…”