Short Selling Threat and News Sentiment Management in Press Releases

Abstract

This study presents evidence that firms actively manage sentiment in press releases to reduce their exposure to short selling threats. I exploit the suspension of short selling constraints as an exogenous shock to the short selling threat borne by firms. Using a sample of 110,938 firm-press release observations from 2001 to 2007 and a difference-in-differences methodology, I find that firms facing increased short selling threats increase the sentiment in press releases after the suspension of short selling constraints more than otherwise similar firms without increased short selling threats. Meanwhile, higher sentiment in corporate press releases deters short sellers. Specifically, stocks with the suspension of short selling constraints are more likely to be short sold but such stocks with higher news sentiments are less likely to be short sold. These findings suggest that press release sentiment can be strategically used by firms to advance their own interests.