Return Predictability and Short-Selling: Evidence from Corporate Restructuring Announcements

• In Event: Information Systems in the 21st Century

Abstract

Recent research suggests that the 2002 adoption of the Statement of Financial Accounting Standards (SFAS) 146 resulted in a weaker association between restructuring charges and earnings management, and that after SFAS 146 adoption, investors place a higher value on restructuring charges, implying recognition of those charges as more persistent in their relation to future values. We contend that while SFAS 146 provisions represent improvement, there remain shortcomings in the reporting for restructurings. Based on restructuring announcements made post SFAS 146 adoption, this study reports increased short-selling activity and a negative association between abnormally high short selling volume and negative future abnormal returns. Together, these imply that near the announcement date, investors acting as short sellers are able to differentiate restructurings expected to succeed from those expected to be unsuccessful.

Authors

• Belinda Charlene Henderson, Louisiana State University

• Nusrat Jahan, Louisiana State University

• Kenneth J Reichelt, Louisiana State University