Third-party consequences of short-selling threats: The case of auditor behavior

Ole Kristian Hope*, Danqi Hu, Wuyang Zhao

*Corresponding author for this work

Research output: Contribution to journalArticle

18 Scopus citations

Abstract

This study examines how short-selling threats affect auditors. During 2005–2007, the SEC ordered a pilot program in which one-third of the Russell 3000 index firms were arbitrarily chosen to be exempted from short-sale price tests. As a result, these stocks faced significantly higher short-selling threats. We implement a difference-in-differences test with firm fixed effects to show that auditors react to the increased threats and charge higher audit fees to the pilot firms. Further, we find that the impact only exists when auditors are concerned with the bankruptcy risk or when managers are less likely disciplined by short sellers.

Original languageEnglish (US)
Pages (from-to)479-498
Number of pages20
JournalJournal of Accounting and Economics
Volume63
Issue number2-3
DOIs
StatePublished - Apr 2017

Keywords

  • Audit fees
  • Bankruptcy risk
  • CEO overconfidence
  • Regulation SHO
  • Short selling

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics

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