Short interest as a signal to issue equity

Don M. Autore; Irena Hutton; Danling Jiang; Dominque G. Outlaw

doi:10.1016/j.jcorpfin.2017.12.014

Short interest as a signal to issue equity

Don M. Autore
, Irena Hutton
, Danling Jiang
, Dominque G. Outlaw

Dean's Office, College of Business

Florida State University
Hofstra University

Research output: Contribution to journal › Article › peer-review

3 Scopus citations

Abstract

We find that the level of short interest in a firm's stock significantly predicts future seasoned equity offers (SEOs). The probability of an SEO announcement increases by 34% (decreases by 49%) for firms in the top (bottom) quintile of short interest. We identify a causal impact of short interest on SEO issuance using a novel instrument for short interest based on future litigation filings in close geographical proximity to hedge fund centers. Our findings suggest that corporate decisions can be triggered by the aggregate trading activity of sophisticated outside investors.

Original language	English
Pages (from-to)	797-815
Number of pages	19
Journal	Journal of Corporate Finance
Volume	48
DOIs	https://doi.org/10.1016/j.jcorpfin.2017.12.014
State	Published - Feb 2018

Keywords

Feedback effect
Litigation
Seasoned equity offers
Short interest
Trigger effect

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10.1016/j.jcorpfin.2017.12.014

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title = "Short interest as a signal to issue equity",

abstract = "We find that the level of short interest in a firm's stock significantly predicts future seasoned equity offers (SEOs). The probability of an SEO announcement increases by 34\% (decreases by 49\%) for firms in the top (bottom) quintile of short interest. We identify a causal impact of short interest on SEO issuance using a novel instrument for short interest based on future litigation filings in close geographical proximity to hedge fund centers. Our findings suggest that corporate decisions can be triggered by the aggregate trading activity of sophisticated outside investors.",

keywords = "Feedback effect, Litigation, Seasoned equity offers, Short interest, Trigger effect",

author = "Autore, \{Don M.\} and Irena Hutton and Danling Jiang and Outlaw, \{Dominque G.\}",

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year = "2018",

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language = "English",

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AU - Autore, Don M.

AU - Hutton, Irena

AU - Jiang, Danling

AU - Outlaw, Dominque G.

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N2 - We find that the level of short interest in a firm's stock significantly predicts future seasoned equity offers (SEOs). The probability of an SEO announcement increases by 34% (decreases by 49%) for firms in the top (bottom) quintile of short interest. We identify a causal impact of short interest on SEO issuance using a novel instrument for short interest based on future litigation filings in close geographical proximity to hedge fund centers. Our findings suggest that corporate decisions can be triggered by the aggregate trading activity of sophisticated outside investors.

AB - We find that the level of short interest in a firm's stock significantly predicts future seasoned equity offers (SEOs). The probability of an SEO announcement increases by 34% (decreases by 49%) for firms in the top (bottom) quintile of short interest. We identify a causal impact of short interest on SEO issuance using a novel instrument for short interest based on future litigation filings in close geographical proximity to hedge fund centers. Our findings suggest that corporate decisions can be triggered by the aggregate trading activity of sophisticated outside investors.

KW - Feedback effect

KW - Litigation

KW - Seasoned equity offers

KW - Short interest

KW - Trigger effect

UR - https://www.scopus.com/pages/publications/85039848433

U2 - 10.1016/j.jcorpfin.2017.12.014

DO - 10.1016/j.jcorpfin.2017.12.014

M3 - Article

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SN - 0929-1199

VL - 48

SP - 797

EP - 815

JO - Journal of Corporate Finance

JF - Journal of Corporate Finance

ER -

Short interest as a signal to issue equity

Abstract

Keywords

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