Blind spot in the market: How the UK's short-selling disclosure threshold obscures early warnings of corporate misconduct
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2025-07-04
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en
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This thesis asks whether two market-based signals, disclosed short positions and firm-specific media sentiment, can anticipate corporate misconduct by UK-listed companies. Using an event-panel of 591 Financial Conduct Authority (FCA) penalties (2010-2024), it merges FCA short-interest disclosures, Good Jobs First’s UK Violation Tracker, and RavenPack news sentiment scores. Media sentiment does dip modestly in the months before enforcement, hinting that journalists spot problems early. Short-selling data, however, deliver a stark null: not a single disclosed position breaches the FCA’s 0.5 % reporting threshold around any misconduct event. Rather than proving shorts uninformed, the thesis draws on Grossman–Stiglitz (1980) information-cost theory to argue that sophisticated traders deliberately stay below the threshold to avoid revealing their bets, creating a regulatory “blind spot” that hides valuable warning signals from investors and researchers alike. The study thus reframes a null finding as evidence of flawed market-transparency design. It recommends lowering the disclosure bar to 0.1–0.2 % and granting anonymised access to sub-threshold data, while inviting broader debate on how regulation should balance trader privacy against the public’s need for timely governance cues.
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Faculteit der Managementwetenschappen