Short Sellers as Detectors of Non-Financial Corporate Misconduct in the US
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2025-07-04
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en
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Short sellers play a vital role in financial markets by uncovering information and positioning ahead of price declines. This thesis examines whether their monitoring extends to non-financial corporate misconduct. This includes environmental, labor, consumer-protection, and similar ESG-related violations, in U.S. firms between 2009-2023. Using a two-stage approach, I first identify determinants of abnormal short interest prior to public reveal dates, testing whether ASI is higher for severe violations, varies across offense types and industries, and differs before financial versus non-financial offenses and pre- versus post-2020. Next, I conduct an event study regressing cumulative abnormal returns over five post-event windows on pre-event ASI, violation severity, and their interaction, with controls for leverage, size, industry, and year, while clustering standard errors by firm. I find that ASI buildup is most pronounced around competition-related offenses and after 2020, and that financial violations attract greater ASI than non-financial ones. In the CAR regressions, ASI has minimal economic impact short-term but predicts less negative returns at 30 days, while severity predicts long run losses. The ASI x severity interaction term amplifies initial declines but rebounds by 30 days, which suggests an overshooting-and-correction dynamic. These findings reveal nuanced short-seller foresight in non-financial misconduct, with implications for investors and regulators.
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Faculteit der Managementwetenschappen