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- Title
Securities and Exchange Commission Comment Letter Disclosures and Short Sellers' Front Running.
- Authors
Lee, Sam; Ling, Zhejia; Rezaee, Zabihollah
- Abstract
Prior studies show that comment letters released by the Securities and Exchange Commission provide information on firms' financial reporting quality and can have adverse value implications about the firms. We examine whether short sellers front-run comment letter disclosures and take short positions based on the economic implications of the letters. We find that short interest increases before comment letter disclosures and that the increase is positively associated with the severity of the letters. We also find evidence suggesting that short sellers obtain private information through social connections with corporate insiders. Finally, we document a negative but delayed market reaction to the disclosure of severe comment letters. These results suggest that front running the comment letter disclosure is not the optimal trading strategy for short sellers. Short sellers can gain similar profits, and bear less risk, if they put off increasing their short positions until after the disclosure. JEL Classifications: G32; M40.
- Subjects
UNITED States. Securities &; Exchange Commission; SHORT selling (Securities); SOCIAL belonging; FINANCIAL disclosure; FINANCIAL statements; CORPORATE profits
- Publication
Accounting Review, 2023, Vol 98, Issue 5, p375
- ISSN
0001-4826
- Publication type
Article
- DOI
10.2308/TAR-2017-0690