Seminar Ahmed Ayman

Ahmed Ayman (University of Leeds) will present his paper “Short” of informative?: Short-sellers’ reaction to routine CAMs,” alongside Alan Duboisée de Ricquebourg (University of Leeds), Chloe Yu-Hsuan Wu (University of Leeds), and Warren Maroun (University of the Witwatersrand).

Abstract:

We extend recent literature on the informativeness of CAMs by investigating short-seller reaction to the informational content in CAM disclosures by using short-sellers, in their capacity as sophisticated investors. Initial results extend prior CAM literature, and find that short-interest is not significantly associated with changes in the auditing regulations. Additional tests, however, find that short-sellers are interested in firms that receive CAMs related to operating expenses. We draw on the notion of “combined assurance” and find that short-interest is significantly associated with firms that receive routine CAMs, indicating that (1) CAMs discussing a routine account or transaction provide incremental information to short-sellers that have not been communicated using other channels, and (2) by disclosing a routine CAM, the auditor is signaling a deficiency in the internal control mechanism and an increased control risk, which has been historically linked to short-seller interest. Moreover, the findings are more pronounced for firms with high information asymmetry.