Short selling and future cash flow predictability of capital investment

evidence from Australia

Haiyan Jiang, Jia Jing

Research output: Contribution to journalArticle

Abstract

This study investigates whether short selling, as a market mechanism, has a disciplining function for firms’ investment efficiency, measured through the association between capital investment and future cash flows. Using a sample of large Australian listed firms, we find that short-selling activities improve the positive relationship between capital investment and future cash flow and that this effect is mainly driven by firms with a risk management committee (RMC). Additional analyses show that the disciplining function of short selling for firms’ investment efficiency varies with (i) the level of firms’ financial constraints, (ii) firms’ life cycle or (iii) CEO share incentives. The main results are robust to a batch of endogeneity tests to address the potential self-selection bias and the concern about reverse causality.
Original languageEnglish
Article number100224
JournalJournal of Contemporary Accounting and Economics
DOIs
Publication statusE-pub ahead of print - 19 Sep 2020

Keywords

  • Financial constraints
  • Future cash flows
  • Investment efficiency
  • Life cycle
  • Risk management
  • Short selling

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