Do Corporate Managers Learn from Short Sellers? Evidence from A Randomized Experiment

We examine how the exemption of short-sale uptick tests due to the Regulation SHO pilot program affects managers’ decisions to abandon value-reducing acquisition attempts. We find that when deciding whether to abandon value-reducing acquisition attempts during the pilot program, managers of pilot firms, whose stocks are less subject to short selling impediments, are more sensitive to stock price changes than managers of nonpilot firms. We find no difference in managers’ sensitivity prior to nor post the program. These results suggest that, despite managers’ repugnance toward short sellers, they learn more from stock price changes when short sellers are less impeded in the price setting process.