Informed Short Selling around SEO Announcements

45 Pages Posted: 22 Dec 2014 Last revised: 6 Jun 2017

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: May 31, 2017

Abstract

While much of the prior research on short selling around announcements of seasoned equity offerings (SEOs) has focused on manipulation, it is unclear whether there is also informed short selling around these announcements. We test for informed short selling around SEO announcements by examining the relation between i) pre-announcement short selling and the announcement-period return and ii) changes in short interest around the SEO announcement and the long-term operating and stock price performance following the equity issue. We find that firms with large increases in short interest prior to the SEO announcement exhibit lower (i.e., more negative) announcement-period returns, and that firms with large increases in short interest around the SEO announcement experience inferior long-term operating and stock price performance following the equity issue. We also find that the negative relation between large increases in short interest and long-term operating and stock price performance is more pronounced among shelf offers. This result highlights the informational role of short sellers in identifying opportunistic market timers of equity issues among shelf filers. Our overall results indicate the presence of informed short selling around SEO announcements.

Suggested Citation

Deshmukh, Sanjay and Gamble, Keith Jacks and Howe, Keith M., Informed Short Selling around SEO Announcements (May 31, 2017). Journal of Corporate Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2541133 or http://dx.doi.org/10.2139/ssrn.2541133

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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