Short interest and stock price crash risk |
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| Affiliation: | 1. School of Business, Renmin University of China, China;2. School of Accountancy, Central University of Finance and Economics, China;3. Business School, Hunan University, No. 109 Shijiachong Road, Yuelu District, Changsha, Hunan 410006, China;1. College of Business Economics, Qatar University, Doha, Qatar;2. Gerald Schwartz School of Business, St. Francis Xavier University, Antigonish, Nova Scotia, Canada;1. Essex Business School, University of Essex, UK;2. Durham University Business School, Durham University, UK |
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| Abstract: | Using a large sample of U.S. public firms, we find robust evidence that short interest is positively related to one-year ahead stock price crash risk. The evidence is consistent with the view that short sellers are able to detect bad news hoarding by managers. Additional findings show that the positive relation between short interest and future crash risk is more salient for firms with weak governance mechanisms, excessive risk-taking behavior, and high information asymmetry between managers and shareholders. Empirical support is provided showing that the relation between short interest and crash risk is driven by bad news hoarding. |
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| Keywords: | Crash risk Short interest Agency conflict |
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