The Impact of Short-Selling Pressure on Corporate Employee Relations

We show that randomly-selected Reg SHO pilot firms respond to increased threats of short selling by significantly improving their employee relations. Pilot firms enhance employee security to reduce the likelihood of negative announcements that might attract short-selling interest. Consistent with expectations, we find that the largest employee-relation improvements occur among pilot firms that operate in the high tech industry and have above-average levels of R&D intensity, product and labor market competition, financial leverage, and employment-specific litigation risk. We also find that pilot firms with poor employee relations in the pre-Reg SHO period make significantly larger post-Reg SHO employee-relation improvements.