Finance Seminar（2014-16）

Topic:Does Short Selling Discipline Managerial Empire Building?

Speaker:Tse-Chun Lin, University of Hong Kong

Time:Wednesday, 11 June, 10:00-11:30

Location:Room 217, Guanghua Building 2

Abstract：This paper explores the disciplining effect of short selling on managerial empire building. We find that firms with more stock’s lending supply have longer spells between investment spikes, lower subsequent abnormal capital investments, and higher announcement returns of acquiring firms. Firms with more lending supply also have higher subsequent Tobin’s Q and ROA. This disciplining effect is stronger for firms with higher manager’s wealth-performance sensitivity and lower financial constraints and for stock-financed acquisition deals. Alleviating the endogeneity concern, our multivariate difference-in-difference analysis shows that this disciplinary force is more effective for firms that are in the Regulation SHO-PILOT Program.