Topic: Governance through Threat: Does Short Selling Improve Internal Governance?

Speaker: Hong Zhang, Assistant Professor of Finance, INSEAD

Date: October 16, 2013 (Wed.)

Time: 1:00-2:30pm

Location: Building 4, Room 101

Language: English

Abstract:

We explore the relationship between internal governance and the disciplining mechanisms created by the threat of short selling (i.e., “short-selling potential”). We argue that the presence of short selling increases the cost of agency problems for shareholders and incentivizes them to improve internal governance. Our stock-level tests across 23 developed countries during 2003-2009 confirm that the threat of short selling significantly enhances the quality of internal governance. This effect is stronger for financially constrained firms and more pronounced in countries with weak institutional environments. The governance impact of short selling leads to an improvement in firms’ operating performance.

About the speaker:

Hong Zhang is an Assistant Professor of Finance at INSEAD. He received his PhD in Finance from Yale School of Management in December 2004. Prior to studying finance, he studied physics in New York University and Fudan University and had won a national gold medal at 8th Chinese Physics Olympics. His research interests focus on asset pricing, investments (especially related to mutual funds and hedge funds), and international finance. Dr. Zhang has published in top finance journals such as Review of Financial Studies and the Review of Finance.