Insider Sales under the Threat of Short Sellers: New Hypothesis and New Tests

50 Pages Posted: 1 Feb 2016 Last revised: 16 Jun 2021

See all articles by Kemin Wang

Kemin Wang

Fudan University - School of Management

Rencheng Wang

Singapore Management University - School of Accountancy

K.C. John Wei

Hong Kong Polytechnic University

Bohui Zhang

The Chinese University of Hong Kong, Shenzhen

Yi Zhou

Fudan University

Date Written: April 9, 2018

Abstract

Using the Regulation SHO program as a quasi-experiment, we document that the threat of short selling has a negative effect on the volume of opportunistic insider selling and a positive effect on its profitability for each transaction. These effects are stronger among firms with higher litigation risk, greater media coverage, and executives who have more of their firms’ stock-related holdings. We further find robust evidence when we extend the analyses to short selling deregulations in the Chinese and Hong Kong stock exchanges. Overall, our findings suggest that short sellers play a disciplinary role in opportunistic insider selling.

Keywords: Regulation SHO, short selling, insider trading, disciplining hypothesis, crowding-out hypothesis

JEL Classification: D8, D53, G14, G18

Suggested Citation

Wang, Kemin and Wang, Rencheng and Wei, Kuo-Chiang (John) and Zhang, Bohui and Zhou, Yi, Insider Sales under the Threat of Short Sellers: New Hypothesis and New Tests (April 9, 2018). Singapore Management University School of Accountancy Research Paper No. 2021-139, Available at SSRN: https://ssrn.com/abstract=2724532 or http://dx.doi.org/10.2139/ssrn.2724532

Kemin Wang

Fudan University - School of Management ( email )

No. 670, Guoshun Road
Shanghai, 200433
China

Rencheng Wang (Contact Author)

Singapore Management University - School of Accountancy ( email )

60 Stamford Road
Singapore 178900
Singapore

Kuo-Chiang (John) Wei

Hong Kong Polytechnic University ( email )

11 Yuk Choi Rd
Hung Hom
Hong Kong

Bohui Zhang

The Chinese University of Hong Kong, Shenzhen ( email )

Yi Zhou

Fudan University ( email )

No. 670, Guoshun Road
No.670 Guoshun Road
Shanghai, 200433
China

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