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This study investigates whether short selling, as a market mechanism, has a disciplining function for firms’ investment efficiency, measured through the association between capital investment and future cash flows. Using a sample of large Australian listed firms, we find that short-selling activities improve the positive relationship between capital investment and future cash flow and that this effect is mainly driven by firms with a risk management committee (RMC). Additional analyses show that the disciplining function of short selling for firms’ investment efficiency varies with (i) the level of firms’ financial constraints, (ii) firms’ life cycle or (iii) CEO share incentives. The main results are robust to a batch of endogeneity tests to address the potential self-selection bias and the concern about reverse causality.

Item Type:	Refereed Article
Keywords:	short selling, investment efficiency, future cash flows, risk management, financial constraints, life cycle
Research Division:	Commerce, Management, Tourism and Services
Research Group:	Accounting, auditing and accountability
Research Field:	Financial accounting
Objective Division:	Commercial Services and Tourism
Objective Group:	Financial services
Objective Field:	Finance services
UTAS Author:	Jia, J (Dr Jing Jia)
ID Code:	141495
Year Published:	2020
Deposited By:	TSBE
Deposited On:	2020-10-26
Last Modified:	2021-04-22
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