Please use this identifier to cite or link to this item: http://hdl.handle.net/10125/64836

Short Sellers and Credit Rating Quality: Evidence from a Natural Experiment

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Title:Short Sellers and Credit Rating Quality: Evidence from a Natural Experiment
Authors:Mei Cheng
Eliza Xia Zhang
Keywords:Short sellers
Credit rating quality
Credit rating agencies
Regulation SHO
Date Issued:26 Aug 2019
Abstract:Using Regulation SHO as a controlled experiment, we examine the effect of short sellers on credit rating quality. We find a larger improvement in rating quality for pilot firms than for non-pilot firms when short sale constraints are removed for pilot firms. Further analyses document two mechanisms through which short sellers increase rating quality: short sellers discipline rating agencies by threatening to expose rating inaccuracies and provide additional information to rating agencies. Overall, this study highlights an important market force’s (i.e., short sellers’) effect on rating quality. The findings should be informative to academics and regulators who remain interested in improving rating quality.
URI:http://hdl.handle.net/10125/64836
Appears in Collections: 05 Financial: Debt Market Research (Including Credit Ratings/Debt Contracts)


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