Short-Selling Pressure and Workplace Safety: Curbing Short-Termism Through Stakeholder Interdependencies

Abstract

We advance a multistakeholder framework that highlights the influence of stakeholders in tempering short-termist responses to capital market pressures. When firms face pressure from short sellers in the capital market, they sometimes shift attention to short-term stock performance and neglect critical investments that pay off in the long run. Relying on a quasi-natural experiment and establishment-level data on workplace injuries, we find that short-selling pressure causes an increase in employee injuries. Critically, however, the degree to which the response is short-termist depends on the salience of multiple stakeholders (analysts, shareholders, employees, and managers). We discuss the implications for understanding firms’ relations with their stakeholders and, particularly, how these stakeholders influence corporate responses to capital market pressures in ways that matter for long-term value creation. This study also contributes to strategy research by highlighting the downside of capital market deregulation. Funding: Rengong Zhang acknowledges the financial support from the CityU Strategic Research Grant. Supplemental Material: The online appendix is available at https://doi.org/10.1287/orsc.2022.1576 .