Short‐selling pressure and year‐over‐year MD&A modifications

Using the SEC's Regulation SHO as a natural experiment, we examine effect of an increase in short selling pressure on year-over-year modification management discussion and analysis (MD&A) section firms' 10-K reports. We find that elevated threat selling, resulting from removal short-sale constraint, causes randomly selected pilot firms to modify MD&A less relative previous year than non-pilot during period (2005–2007). Moreover, cross-sectional analyses indicate this is pronounced with moderately good news; investment or equity issuance; larger overvalued firms; conservative managers, financial stability, opaque information environments.