Short-selling threats and real earnings management - International evidence

This paper investigates the effect of short selling threat on managers' earnings management choices in an international setting. Using data from 22 countries between 2003 and 2015, we find that short-selling threat constrains real earnings management, and this effect is mainly driven by firms operating in countries with weak shareholder protection. Furthermore, we also reveal that the monitoring effect of short sale is more pronounced in countries where short sale is not only legal but also feasible.