The Information Content of Short Selling Around Close Supply Chain Relationships. Issue 3 (15th July 2018)

• Record Type: Journal Article
• Authors: Evans, Jocelyn D.; Outlaw, Dominique G.
• Is Part Of: Financial review. Volume 53:Issue 3(2018)
• Page Start: 627
• Page End: 655
• Publication Date: 2018-07-15
• Subjects: trade credit -- financial distress -- short selling -- negative earnings surprise -- G01 -- G30 -- G32 -- G33 -- G14; Finance -- United States -- Periodicals; Finance -- Periodicals; 332
• DOI: 10.1111/fire.12163
• Languages: English
• ISSNs: 0732-8516

Abstract

Abstract: Close supply chain relationships are sometimes detrimental to the partnering firms, and short sellers recognize this before the rest of the market. Suppliers and customers that are in linked, close supply chain relationships have higher short interest on average. Further, higher short interest increases the likelihood of large, linked customers reporting negative earnings surprises, whereas suppliers with high short interest are more likely to report negative earnings surprises, irrespective of the supply chain structure. Short selling is informative to capital markets because these suboptimal relationships eventually lead to dependent suppliers being delisted from a stock exchange for financial distress reasons.