Disciplining Role of Short Sellers: Evidence From M&A Activity

Wei Shi, Hermann Achidi Ndofor, Robert E. Hoskisson

Research output: Contribution to journalArticlepeer-review

5 Scopus citations


Prior research has focused on the influence of long investors (e.g., institutional investors) on merger-and-acquisition (M&A) decisions. This study investigates the role of short sellers in shaping managerial acquisitiveness and M&A decision quality. Short sellers impose a downward pressure on stock prices by disseminating negative information to the market. Given that managerial wealth and job security hinge on stock prices, top managers respond to increased short selling by refraining from excessive M&A activities because M&As could provide opportunities for short sellers to spread negative information and dampen stock prices. Furthermore, the negative influence of short sellers on managerial acquisitiveness is enhanced by the market for corporate control as an external governance mechanism and by CEO equity ownership as an internal governance mechanism. When firms with increasing short selling do engage in M&As, they gain higher M&A announcement returns and operating performance. We test our hypotheses using firms in the S&P 1500 from 2002 to 2014 and find support for our arguments.

Original languageEnglish (US)
Pages (from-to)1103-1133
Number of pages31
JournalJournal of Management
Issue number5
StatePublished - May 2021


  • corporate governance
  • governance complementarity
  • mergers and acquisitions
  • short sellers

ASJC Scopus subject areas

  • Finance
  • Strategy and Management


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