The coefficient on RELSS in
the benchmark period is negative and significant in model 5.
In their 1993 work Gerard and
Nanda point out that restrictions on SS can be costly to issuers if they
constrain informed short sales. This implies that firms that normally have
higher level of relative short selling have smaller issue discounts which is consistent
with the literature that short sellers usually increase price efficiency.
But firms with higher relative
short selling prior to the SEO have larger issue discounts, supporting the
view that short selling before the issue date is making prices less
To be able to compare their
results with prior literature the authors collect monthly short interest data
for their sample of SEOs and run analyses similar to those carried out by
Safieddine and Wilhelm. They find that consistent with prior research there is
no evidence of manipulative short selling. However they continue to find that
the coefficients on daily short selling to be consistently positive and
They find no relationship
between monthly short interest rate and issue discount they do find a
consistent relationship between daily short selling and issue discount.
The lack of evidence of
manipulative trading in prior research is attributed to the lack of power in
the short interest data.
The primary conclusion of this
section ia that abnormally high levels of SS are related to larger issue