Can Short Sellers Detect Internal Control Material Weaknesses? Evidence From Section 404 of the Sarbanes–Oxley Act
研究发现卖空者能提前识别即将披露内部控制重大缺陷的公司，且主要依赖私有信息而非公开信息，在信息环境差的公司中预测能力更强。
We examine whether short sellers are interested in, and capable of, identifying firms with an upcoming revelation of internal control material weaknesses (ICMW). We show that short sellers accumulate positions in firms that are about to disclose ICMW under Section 404 of the Sarbanes–Oxley Act for the first time when internal control problems are severe. We find that the short-interest buildup is mainly due to the use of private rather than public information, which suggests that their trades contain incremental prediction power of the upcoming internal control failure. Furthermore, the ability of short sellers to predict ICMW is more pronounced in firms operating in poor information environment. Finally, we find no evidence that trades by short sellers prior to the ICMW disclosure create a cascade of selling that leads to an overreaction of ICMW. Overall, we present evidence that corporate governance information in the form of ICMW is part of the short sellers’ information set, and we establish a path through which ICMW impacts equity investors.