Do short-sellers arbrtrage accrual-based return anomalies?

We find a positive association between short-selling and accruals, and between short-selling and NOA, during 1988-2003. The accrual and NOA return anomalies are asymmetric. The absolute value of mean abnormal returns is larger for high-accrual firms than low-accrual firms on NASDAQ, but not on NYSE, and the abnormal return asymmetry is stronger among firms with low institutional holdings. For NOA, there is only limited evidence that the abnormal return asymmetry is stronger on NASDAQ than on NYSE. These findings indicate that there is short arbitrage of the accrual and NOA anomalies, but that short sale constraints limit the effectiveness of short arbitrage (especially among NASDAQ firms).Accruals; NOA; anomalies; arbitrage; short sales; market efficiency

SHORT ARBITRAGE, RETURN ASYMMETRY AND THE ACCRUAL ANOMALY

We find a positive association between short-selling and accruals during 1988-2003. Short arbitrage occurs primarily among firms in the top accrual decile, and firms with sufficiently high supply of loanable shares (proxied by institutional holdings). Consistent with limits to short arbitrage, there is an asymmetry between the up- and down- sides of the accrual anomaly. Asymmetry is only present on NASDAQ, and is significantly stronger among firms with low institutional holdings, low liquidity (turnover and size), and high residual volatility. Thus, there is short arbitrage of the accrual anomaly, but short sale constraints limit its effectiveness

Short Arbitrage, Return Asymmetry and the Accrual Anomaly

We find a positive association between short-selling and accruals during 1988-2009, and that asymmetry between the long and short sides of the accrual anomaly is stronger when constraints on short-arbitrage are more severe (low availability of loanable shares as proxied by institutional holdings). Short arbitrage occurs primarily among firms in the top accrual decile. Asymmetry is only present on NASDAQ. Thus, there is short arbitrage of the accrual anomaly, but short sale constraints limit its effectiveness

Do short-sellers arbrtrage accrual-based return anomalies?

We find a positive association between short-selling and accruals, and between short-selling and NOA, during 1988-2003. The accrual and NOA return anomalies are asymmetric. The absolute value of mean abnormal returns is larger for high-accrual firms than low-accrual firms on NASDAQ, but not on NYSE, and the abnormal return asymmetry is stronger among firms with low institutional holdings. For NOA, there is only limited evidence that the abnormal return asymmetry is stronger on NASDAQ than on NYSE. These findings indicate that there is short arbitrage of the accrual and NOA anomalies, but that short sale constraints limit the effectiveness of short arbitrage (especially among NASDAQ firms)

SHORT ARBITRAGE, RETURN ASYMMETRY AND THE ACCRUAL ANOMALY

We find a positive association between short-selling and accruals during 1988-2003. Short arbitrage occurs primarily among firms in the top accrual decile, and firms with sufficiently high supply of loanable shares (proxied by institutional holdings). Consistent with limits to short arbitrage, there is an asymmetry between the up- and down- sides of the accrual anomaly. Asymmetry is only present on NASDAQ, and is significantly stronger among firms with low institutional holdings, low liquidity (turnover and size), and high residual volatility. Thus, there is short arbitrage of the accrual anomaly, but short sale constraints limit its effectiveness

Did Information Intermediaries See the Warning Signals of the Banking Crisis from Leading Indicators in Banks’ Financial Statements?

We investigate whether the observable actions of four information intermediaries (short sellers, credit rating agency, sell-side analysts, and auditors) in the months prior to the 2008 banking crisis were sensitive to the leading indicators of bank distress constructed from the banks’ publicly-available financial statements. We find that the mean level of short interest in our sample of banks increased steadily from 0.66% at the end of 2002 to 4.0% at the end of 2007. However, we observe little meaningful change in the mean credit rating, mean analysts’ recommendation and mean audit fees over this period. Further analysis reveals that the level of short interest in particular and analysts’ stock recommendations to some extent, exhibit a much stronger association with the leading financial statement based indicators of bank distress over the period 2005-2007 relative to an earlier period of 2002-2004. Unlike short sellers and analysts, the rating actions of a credit rating agency (S&P) and auditors’ fees do not appear to be sensitive to the warning signals of the crisis from the financial statements

DO CONGLOMERATES OPERATE MORE EFFICIENTLY THAN SINGLE-SEGMENT FIRMS?

We investigate the impact of organizational form on operational efficiency using a large sample covering manufacturing and non-manufacturing sectors in the United States over 30 years. We quantify operational efficiency using various measures, and find robust evidence that segments of diversified firms are operationally more efficient than their single-segment industry peers. The difference is more noticeable in industries where financing needs are high due to greater growth potential and where access to external markets is constrained due to higher information asymmetry.12 month embargo; published: 15 July 2020This item from the UA Faculty Publications collection is made available by the University of Arizona with support from the University of Arizona Libraries. If you have questions, please contact us at [email protected]

The spillover effect of fraudulent financial reporting on peer firms' investments

We investigate how high-profile accounting frauds affect peer firms’ investment. We document greater peer investments during fraud periods and show that the increase is consistent with peer firms reacting to the fraudulent reports, not merely driven by an association between fraud and investment booms. Peer firms’ over-investments increase in fraudulent earnings overstatements, and in industries with higher investor sentiment, lower cost of capital and higher private benefits of control. We also find evidence consistent with an equity-financing channel facilitating the overinvestment and equity analysts transmitting the distorted signal. Overall, we provide systematic evidence that frauds result in industry peer over-investment