Family Controlled Firms and Informed Trading: Evidence from Short Sales. Available:http://astro.temple.edu/dreeb/Family%20Controlled%20Firms%20and%20Informed%20Trading.pd f [Accessed 03.march

We examine the effect of family control on the level and informational content of short sales in publicly-traded U.S. firms. We find significantly greater relative short sales in family controlled firms than in diffuse shareholder firms. Focusing on the potential informational content of short sale activity, we find that family controlled firms experience over 340 % greater abnormal short sales preceding negative earnings shocks than diffuse shareholder firms. These results are most pronounced when either founders or their descendants actively manage the firm. Further tests suggest that relative short sales in family firms contains valuable or useful information in forecasting future stock returns however; this effect is not discernable in diffuse shareholder firms. In aggregate, our analysis provides evidence suggesting that informed trading, at least in short sales, occurs more readily in family controlled firms than in diffuse shareholder firms. One inference is that regulations designed to limit trading by those with access to material, non-public information appear ill-suited for family controlled firms