Companies “Attacked” By Major Activist Short-Sellers Are Often Delisted

Companies “Attacked” By Major Activist Short-Sellers Are Often Delisted
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Half of the companies “attacked” by major Activist Short-Sellers are delisted, suspended from stock exchanges, or go bankrupt, says new research

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  • Developed by Professors Luc Paugam and Hervé Stolowy from HEC Paris and Yves Gendron of the Université Laval, this new paper analyses the short, mid and long-term consequences of Activist Short-Sellers' “research reports” on the market value of the companies they target
  • Through a detailed analysis of narratives used in 383 research reports, the authors were able to assess the language and common persuasion techniques used by activist short sellers, and how their messages were subsequently interpreted by the media and investors
  • Because of the importance of the press in shaping investors’ opinions, the research has important consequences in understanding the major role activist short sellers play in policing financial markets.

New research developed by Luc Paugam, an associate professor of financial accounting, Hervé Stolowy, professor of financial accounting, both at HEC Paris, and Yves Gendron of the Université Laval, looks at the impact activist short-sellers have on the markets through the publication of a series of “research reports” primarily developed to denounce fraud and malpractices of publicly-listed companies. More specifically, the authors analyze the narratives used in these reports and how these persuade market participants of the validity of their denunciating claims. Drawing on Aristotle’s rhetoric, the research shows that short sellers not only rely on logical arguments (logos) but also establish their credibility (ethos) and rely on the audience’s emotions (pathos) to develop a convincing narrative.

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Companies Targeted By Short Sellers Suffer Significant Market Value Losses

To be published in the journal Contemporary Accounting Research in 2021, the paper sheds light on the huge impact these practices have on the reputation and market value of the companies targeted and, ultimately, on the markets. Titled “Deploying Narrative Economics to Understand Financial Market Dynamics: An Analysis of Activist Short Sellers’ Rhetoric,” the study finds that companies targeted in the reports register significant market value losses which last well over six months after publication. Shockingly, the authors also found that close to half of targeted firms attacked were either classified as either bankrupt, delisted, or suspended from stock exchanges.

Activist short sellers tend to publish their reports on their own websites, in popular financial forums and on social media platforms such as Twitter. Sometimes, the results of their reports get picked up by other media outlets, which would then magnify the impact of the results published and, importantly, the narratives used.

The authors have observed that three days after a report is published, the average market-adjusted stock return of companies targeted falls by 11.2%: this represents a reduction of $416 million of market value on average. Two months after publication, cumulative abnormal returns are persistently negative: -14.5%. This continues into a period of six months with cumulative abnormal returns of -22.6% on average.

The authors analysed 383 research reports targeting 171 firms from six prominent activist short sellers, and three first-hand interviews with activist short sellers.

The Value Of Activist Short-Sellers

Though efforts have been made and technology developed to detect and address fraud, it is generally seen as an enduring problem. In this context, the activities of activist short sellers might be welcomed practices in the fight against financial irregularities. Through this paper, the authors show that activist short sellers are endowed with a potential to convince a fair number of market participants that fraudulent behavior took place in specific settings.

“We found that private sector practices, such as those of activist short sellers are indeed able to play an important role in financial markets, by demonstrating that fraud can be identified and acted upon through the verdict of the market,” the authors argue.

Additionally, the authors also praise the potential role activist short sellers could have in addressing corporate fraud when compared to the failures of traditional gatekeepers such as auditors, boards or regulators.

About HEC Paris:

Specializing in education and research in management sciences, HEC Paris offers a complete and unique range of academic programs for the leaders of tomorrow: the Grande Ecole program, Specialized Masters and MSc, Summer School programs, the MBA, Executive MBA and TRIUM Global Executive MBA programs, the Ph.D. program and a wide range of programs for executives and managers.

Founded in 1881 by the Paris Chamber of Commerce and Industry, HEC Paris has a full‐time faculty of 140 professors, 4,500 students and 8,000 managers in executive education programs every year.

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Jacob Wolinsky is the founder of, a popular value investing and hedge fund focused investment website. Jacob worked as an equity analyst first at a micro-cap focused private equity firm, followed by a stint at a smid cap focused research shop. Jacob lives with his wife and four kids in Passaic NJ. - Email: jacob(at) - Twitter username: JacobWolinsky - Full Disclosure: I do not purchase any equities anymore to avoid even the appearance of a conflict of interest and because at times I may receive grey areas of insider information. I have a few existing holdings from years ago, but I have sold off most of the equities and now only purchase mutual funds and some ETFs. I also own a few grams of Gold and Silver
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