Finance Seminar with Massimo Massa, INSEAD

The Department of Finance is proud to announce the upcoming seminar with Massimo Massa, INSEAD.

Massimo Massa will present:

Governance through Threat: Does Short Selling Improve Internal Governance?

Authors:

Massimo Massa, INSEAD
Bohui Zhang, University of New South Wales
Hong Zhang, INSEAD

Abstract:

We explore the relationship between internal governance and the disciplining mechanisms created by the threat of short selling (i.e., “short-selling potential”). We argue that the presence of short selling increases the cost of poor governance for shareholders and incentivizes them to improve internal governance. Our stock-level tests across 23 developed countries during 2003-2009 confirm that the threat of short selling significantly enhances the quality of internal governance. This effect is stronger for short-term investors and financially constrained firms and pronounced in countries with weak institutional environments. The governance impact of short selling leads to an improvement in firms’ operating performance.

See the full paper here