Short Selling and Firm Operating Performance

Financial Management, Forthcoming

37 Pages Posted: 4 Sep 2013 Last revised: 21 Oct 2014

See all articles by Sanjay Deshmukh

Sanjay Deshmukh

DePaul University - Department of Finance

Keith Jacks Gamble

Middle Tennessee State University

Keith M. Howe

DePaul University - Department of Finance

Date Written: October 17, 2014

Abstract

While it is well known that short selling predicts future negative stock price performance, it has not been established whether short selling predicts future negative operating performance. We find that firms in the top decile of increases in short interest (an increase of about four percentage points) experience a 21% subsequent decline in operating performance relative to matched control firms. The greater the increase in short interest, the larger the decline in operating performance. The results are robust to alternative performance measures and to sample splits based on firm size. These results suggest that short interest may reflect private information about firm fundamentals rather than other factors that may drive stock price changes.

Keywords: short Interest, firm operating performance

JEL Classification: G14, G30

Suggested Citation

Deshmukh, Sanjay and Gamble, Keith Jacks and Howe, Keith M., Short Selling and Firm Operating Performance (October 17, 2014). Financial Management, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2320074 or http://dx.doi.org/10.2139/ssrn.2320074

Sanjay Deshmukh (Contact Author)

DePaul University - Department of Finance ( email )

1 East Jackson Blvd.
Chicago, IL 60604-2287
United States
312-362-8472 (Phone)
312-362-6566 (Fax)

Keith Jacks Gamble

Middle Tennessee State University ( email )

MTSU Box 27
Murfreesboro, TN 37129
United States

Keith M. Howe

DePaul University - Department of Finance ( email )

1 East Jackson Blvd.
Chicago, IL 60604-2287
United States
312-362-5126 (Phone)

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