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Journal of Corporate Finance Vol. 48 2018

Short interest as a signal to issue equity

Don M. Autore1; Irena Hutton1; Danling Jiang2,3; Dominque G. Outlaw4

1 Florida State University · 2 State University of New York · 3 Southwest Jiaotong University · 4 Hofstra University

Abstract

We find that the level of short interest in a firm's stock significantly predicts future seasoned equity offers (SEOs). The probability of an SEO announcement increases by 34% (decreases by 49%) for firms in the top (bottom) quintile of short interest. We identify a causal impact of short interest on SEO issuance using a novel instrument for short interest based on future litigation filings in close geographical proximity to hedge fund centers. Our findings suggest that corporate decisions can be triggered by the aggregate trading activity of sophisticated outside investors.

DOI
10.1016/j.jcorpfin.2017.12.014
Volume
48
Pages
797-815
Language
en
Sources
openalex crossref bibtex:phds-export.bib

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