Short Sellers: A screening theory perspective on B2B relationships

Abstract There is a potential dark side to B2B relationships, so managers must determine which relationships hold the most promise. They will make relationship-specific investments (RSIs) in what they perceive to be the best B2B relationships. To help make RSI decisions, managers look for informational cues about the prospects of the relationship. A key determinant of RSI decision-making could be the level of short selling at their potential B2B partner. Short sellers are informed traders who can help top managers make wise decisions about how much to commit to a B2B relationship. We also put forward ideas about scenarios where short sellers will be most salient to RSI decisions. Examination of 1,362 firm-supplier pairs over ten years lend support to our ideas. Specifically, a firm’s level of short interest is negatively associated with RSI by its B2B suppliers. These results are moderated by internal control weaknesses (ICWs) and analyst coverage.