Abstract
This paper investigates the informativeness of short sales on detecting a firm’s investment inefficiency. We document that short sellers adjust their short positions before the financial statement announcements to utilize their information advantage on firms’ investment inefficiency. The relationship between a firm’s short sale position and its future investment inefficiency is both statistically and economically significant, and robust to a broad set of control variables. Subsample analysis shows that the informativeness of short sales positions on future investment inefficiency concentrates on firms with low board independence and firms with low CEO incentive pay.
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