Investor relations under short-selling pressure: Evidence from strategic signaling by company site visits

Exploiting the staggered deregulation of short sales in China as a quasi-experiment, we investigate whether firms change investor relations (IR) strategy when they face short-selling pressure. We document significant increases in IR efforts as measured by the frequency of company visits when firms' stocks become shortable in the market. Our cross-sectional tests further reveal that pilot firms' engagements of such IR activities vary with their ex-ante operating performance, accounting quality, short-selling threat and ownership structure. Moreover, we find that pilot firms with higher IR efforts experience fewer subsequent short sales. We further document that corporate IR efforts are associated with more positive media coverage and facilitate subsequent external financing and capital investment. In addition to the site visits, we also find that pilot firms increase their response rates on online IR platforms. Collectively, results are consistent with our prediction that firms take proactive IR actions as strategic signaling to assist investor communication and discourage short sellers. The findings also suggest that IR activities are effective to reconstruct market perceptions and mitigate downside impacts on firms' operations produced by short sales.