Given the complex and controversial nature of short-selling regulation, we review the academic literature and provide insights for policy makers and academics. We organize the complex history of short-selling regulation into three areas: trading restrictions, securities lending regulations, and disclosure requirements. We identify, analyze, and discuss 45 distinct regulations promulgated from 1896 to 2021, primarily by reviewing the academic literature and the data sources employed. We provide several insights regarding the effectiveness of regulatory approaches and the wider impact of short-selling regulation on markets.

Low monetary policy rates lower the cost of capital for firms, thereby spurring productive investment. Low interest rates however can also induce the private sector to enter into risky carry trades when they imply that the earned carry more than offsets liquidity risk. Such carry trades and productive investment compete for funds, so much so that the former may crowd out the latter. Below an endogenous lower bound, monetary easing generates only limited capital expenditures that come at the cost of large and destabilizing financial risk-taking. Absent the ability to regulate carry trades, monetary easing must be complemented with a restrictive emergency-lending policy in the form of higher lending rates so as to discourage risk-taking by relatively illiquid firms. Monetary easing, tepid investment response, and rollover risk for liquid firms then arise jointly (and optimally) in equilibrium.

We develop a model in which credit ratings are endogenously coarse relative to the underlying default probabilities, and ratings precision is countercyclical. Ratings coarseness arises from the profit-maximizing behavior of rating agencies, and coarseness may maximize welfare even when greater ratings precision is costlessly available. Because the private outcome may differ from the socially desirable outcome, a social planner can improve welfare by putting a ceiling (floor) on the rating agency’s fee if the desired outcome is coarseness (precision). Strikingly, when information production is costless, ratings coarseness is socially optimal, but it does not arise in the laissez-faire equilibrium, thus inviting regulatory intervention.

A CEO's short horizon and associated myopic actions are typically viewed as detrimental to the firm. In contrast, studying a voluntary disclosure model wherein capital market and product market strategic considerations are in play, we show that the CEO's myopic behavior can improve a firm's long-term value. In particular, the disclosures of a long-horizon CEO are seen as being entirely focused on the firm's interests and thus as being exploitative of customers. A short-horizon CEO myopically focused on short-term stock price is less aligned with the firm and, consequently, her disclosures are more customer friendly. As a corollary, when no disclosure is forthcoming, customers are less skeptical that the myopic CEO is withholding information to exploit them. This improves customers' willingness to pay with a myopic CEO, leading to higher firm profitability. The paper also layers in compensation design to derive the optimal degree of managerial short-term focus to induce.

We demonstrate the benefits of merging traditional hypothesis-driven research with new methods from machine learning that enable high-dimensional inference. Because the literature on post-earnings announcement drift (PEAD) is characterized by a “zoo” of explanations, limited academic consensus on model design, and reliance on massive data, it will serve as a leading example to demonstrate the challenges of high-dimensional analysis. We identify a small set of variables associated with momentum, liquidity, and limited arbitrage that explain PEAD directly and consistently, and the framework can be applied broadly in finance.

To what extent does the narrative context surrounding the numbers in financial statements alter the informativeness of these numbers, that is, contextualize them? Answering this question empirically presents a methodological challenge. Leveraging recent advances in deep learning, we propose a method to uncover the value of contextual information learned from the (deep) interactions between numeric and narrative disclosures. We show that the contextualization of accounting numbers makes them substantially more informative in shaping beliefs about a firm's future, especially when numeric data are less reliable. In fact, the informational value of interactions dominates the direct informational value of the narrative context. We corroborate this finding by showing that stock markets and financial analysts incorporate the interactions between narrative and numeric information when making forecasts. We also demonstrate the value of our approach by identifying rich firm‐year–specific heterogeneity in earnings persistence. We discuss a number of avenues for future research.

Firms are required to provide financial information via the financial statements and the management discussion and analysis (MD&A), a narrative explanation of the financial statements. Our study examines how firms use the MD&A channel when their financial statement channel is inadequate. We focus on two textual attributes of the MD&A: non‐GAAP disclosure and forward‐looking statements. We find that firms with less adequate financial statements discuss non‐GAAP measures more and provide a larger number of forward‐looking statements. We then identify the topics, and therefore the context, in which non‐GAAP and forward‐looking disclosures are provided. Our study provides evidence on how managers use the MD&A, a relatively more flexible channel, to provide information when their financial statement channel is less adequate.

In 2018, the European Union (EU) introduced a new mandatory reporting requirement for a wide range of cross‐border tax arrangements (EU Directive 2018/822, also known as DAC6). Unlike prior corporate transparency initiatives, which put the reporting responsibility primarily on the taxpayers, this directive puts the initial reporting responsibility on the third‐party intermediaries who are involved in the reportable arrangement at any stage during the planning and execution process. We exploit the adoption of DAC6 in the EU to examine the effectiveness of third‐party reporting in curbing cross‐border tax planning by multinationals. Using a difference‐in‐differences research design, we find that affected firms reduce income shifting and report higher effective tax rates in the post‐adoption period. The reduction in income shifting is stronger for affiliates operating in countries without legal professional privilege extensions and in countries where noncompliance penalties are higher. Our results highlight the importance of strong third‐party reporting requirements in constraining cross‐border tax planning.