Going Green: A Short Story

Abstract

This paper investigates whether firms’ degree of environmental sustainability motivates short selling investment strategies. This paper also addresses whether short sellers successfully target firms with poor future performance, and whether this performance is driven by previous environmental activity. By using a unique panel of 3,466 publicly listed firms in the U.S. between 2002 and 2021, this study is the first of its kind to provide evidence that a significant, negative relation exists between short interest and past environmental performance. This study additionally finds that firm performance and past short interest are inversely related, and firm performance and past environmental activity are positively related. These results are attributed to recent surges in environmental activism by market participants, where corporations must implement environmentally sustainable business practices to ensure positive future performance in an increasingly green society.