A0496
Title: Textual analysis of short-seller research reports
Authors: Jules Van Binsbergen - Wharton and NBER (United States)
Xiao Han - Bayes Business School, City St Georges, University of London (United Kingdom) [presenting]
Alejandro Lopez Lira - University of Florida (United States)
Abstract: Using survey cash-flow expectations, it is found that investors underreact to the negative cash-flow news included in short-seller reports. On average, target firms earn abnormal returns of -4.9\% on the publication day, and subsequent price revisions equal -15\% over the next 12 months. A novel text-based fraud measure is introduced, and it is found that reports more related to fraud predict larger negative long-term abnormal returns. Using large language models, it is also found that other allegations, such as claims of overvaluation, do not have predictive power. Furthermore, short-seller research reports predict significant reductions in future real investment and stock issuances, with those heavily emphasizing fraud predicting larger declines. A model featuring expectation stickiness combined with limits to arbitrage is consistent with the long-term price impacts of short-seller reports.
