Do Investors Affect Financial Analysts’ Behaviors? Evidence from Short Sellers
53 Pages Posted: 14 Dec 2014 Last revised: 19 Dec 2020
Date Written: December 18, 2020
We examine how short sellers affect financial analysts’ forecast behaviors using a natural experiment that relaxes short-sale constraints. We find that increased ease of short selling improves analyst earnings forecast quality by reducing the forecast bias and increasing the forecast accuracy. The improvements can be explained by both the disciplining pressure from short-sellers and increased price efficiency from incorporating information in a timely manner. While it is well-documented that financial analysts can affect investors, our paper provides novel evidence on how sophisticated investors–short sellers–can affect analysts’ behaviors.
Keywords: Analyst forecast, short sellers, disciplining effect
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