Abstract
Purpose: Although a small part of arbitrage trading, short selling has a significant impact on capital markets. This study empirically examines relationships among short selling, earnings managements, and auditor behaviors. Design/methodology/approach: We employed short selling and abnormal short selling as independent variables. Audit hours, audit fees, and (absolute) value of discretionary accruals as dependent variables. In this study, we basically include ordinary least-squares regression analyses using panel data and interaction analyses. Findings: This study verifies the relationship among short selling, firm earnings management, and auditor behavior, showing positive relationships between short selling and current and future audit fees, audit hours, and current audit quality. Further, higher audit risk, caused by the interaction between abnormal short selling and aggressive earnings management, is reflected in future audit fees and hours. Research limitations/implications: Due to the financial data provided on an annual basis, the daily short selling data was aggregated on an annual basis. This study suggests that short selling is related to firm earnings management behavior, as well as to the auditor behaviors. Therefore, regulators should consider the impacts of short selling on company and auditors as well as investors. Originality/value: This study provides evidence that the positive relationship between short selling and audit fee is not only caused by risk-premium channels, but also by audit-effort channels. Furthermore, we find that the interaction effects of short selling and earnings managements occur only in abnormal short selling. This seemed to impose penalties on short selling exceeding forecasts when auditors considered earnings managements and short selling at the same time.
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Disclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.