ABSTRACT
This paper investigates the effect of a short-selling threat on managers' earnings management choices in an international setting. Using data from 22 countries between 2003 and 2015, we find that a short-selling threat constrains real earnings management, and this effect is mainly driven by firms operating in countries with weak shareholder protection. Furthermore, we also reveal that the monitoring effect of short selling is more pronounced in countries where short selling is not only legal, but also feasible.
Short Selling and Earnings Management: A Controlled Experiment