Accounting Seminar（2015-14）

Topic:Short Interest and Corporate Investments: Evidence from Business Partners

Speaker:Guojin Gong(Penn State University)

Time:Friday,12 June, 10:00-11:30 am

Location:Room 217, Guanghua Building 2

Organizer:Department of Accounting,MPAcc GSM, PKU

Abstract：

Short interest contains valuable information about a firm’s business prospect. We investigate whether such information affects business partners’ real investment decisions in the supply-chain setting. We predict and find that a supplier’s future investments (including inventory, R&D, and tangible asset investments) decrease with its customer’s current short interest. This negative relation is stronger when short interest is more likely to have incremental information value concerning the customer’s business prospect and is more likely to indicate long-lasting deterioration in the customer’s fundamentals. Additional analysis does not support the alternative explanation that the supplier adjusts investments in response to unfavorable information obtained via private communication with its customer. We also find that suppliers who are more responsive to the customers’ short interest in reducing investments experience weaker wealth transfer from these customers and better investment efficiency. Overall, our evidence suggests that customers’ short interest has incremental information value in facilitating suppliers’ investment decisions, and suppliers who adjust their investments based on such information enjoy greater economic benefits.

Your participation is warmly welcomed!