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Can someone explain why short sellers would bother a CEO? Is it an ego thing, or does it actually hurt the company?

• seanhunter 7y ago
  Very frequently top executives get substantial portions of discretionary compensation in the form of shares, restricted stock or options. So things which depress the stock price affect them personally. This is said to help create alignment between management and shareholders because management are shareholders. Short sellers have a vested interest in the price going down (they've backed that view with their cash by selling short after all) so their incentives are diametrically opposed to this. Now, does the share price going down hurt a company? Somewhat, in that it's equity is less attractive so hiring people with options etc is going to be more expensive (people will value cash more) as will fundraising. Things like acquisitions become harder and more expensive too. But it honestly doesn't affect the company to the extent that would justify the obsessive attention that some CEOs seem to give it. That all being said the classical view is that short sellers facilitate liquidity in a stock for when people want to buy and overall this should reduce volatility. All of the above is assuming no market manipulation by the short seller (eg spreading malicious falsehoods about a company in an attempt to drive the share price down). This is something that is often alleged, but when you look at CEOs who say this, they frequently have the opposite tendency to positively spin things in order to send the stock price up.
  • legohead 7y ago
    Thanks for the explanation!