Repeat Offenders in the Stock Market: How Violation History and Short Selling Affect Price Recovery
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2025-07-04
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en
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Previous research shows that markets react sharply to corporate misconduct, yet how repeat offending shapes stock prices and short-selling pressure is underexplored. This study asks whether firms with a history of financial misconduct recover more slowly than first-time offenders and whether abnormal short selling magnifies that gap. Using an event study design, 297 misconduct events by 113 U.S. listed firms between 2016–2023 are analyzed. Cumulative abnormal returns (CARs) and abnormal short interest ratios (ASIRs) are computed across several windows, and OLS regressions with firm-clustered errors and inverse-overlap weights are estimated. Repeat offenders underperform first timers by 0.9 % over both the [-1; +1] and [+2; +5] windows, signalling short term underreaction. Interaction tests show that elevated pre-event ASIR further declines immediate CARs for repeat, but not first time offenders. Recidivists also attract about 0.02 % higher abnormal shorting, though this gap fades within a month. By adding a recidivism lens, covering a broad set of financial offences, and linking them to pre-event short selling, the paper contributes to the financial crime, market efficiency and short selling literature. The evidence supports escalating sanctions for repeat offenders and using short interest spikes as supervisory flags, while investors should treat recidivism and abnormal shorting as joint signals of near term downside risk.
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Faculteit der Managementwetenschappen