Finance Seminar with Massimo Massa, INSEAD
The Department of Finance is proud to announce the upcoming seminar with Massimo Massa, INSEAD.
Massimo Massa will present:
Governance through Threat: Does Short Selling Improve Internal Governance?
Authors:
Massimo Massa, INSEAD
Bohui Zhang, University of New South Wales
Hong Zhang, INSEAD
Abstract:
We explore the relationship between internal governance and the disciplining mechanisms created by the threat of short selling (i.e., “short-selling potential”). We argue that the presence of short selling increases the cost of poor governance for shareholders and incentivizes them to improve internal governance. Our stock-level tests across 23 developed countries during 2003-2009 confirm that the threat of short selling significantly enhances the quality of internal governance. This effect is stronger for short-term investors and financially constrained firms and pronounced in countries with weak institutional environments. The governance impact of short selling leads to an improvement in firms’ operating performance.
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