A Real Threat? Short Selling and CEO Turnover

Abstract

We examine the role of short sellers in forced turnovers. Controlling for various stock return measures, short interest predicts forced turnovers and is higher before turnovers that reveal more private information. Using Regulation SHO as a natural experiment, we show that unrestricted short selling increases the probability of forced turnovers for large firms. The effect is \emph{not} driven by a higher informativeness of stock prices. The relationship between short interest and forced turnovers is stronger in the presence of shareholder activism, while it does not vary with different board characteristics, suggesting activist shareholders are one channel for the effect.