Investors’ Quantitative Disclosure: Target Prices by Short Sellers

While few market participants besides sell-side analysts publicly disclose target prices, we examine a growing trend where activist short sellers provide target prices to support their short theses. We find that short sellers’ target prices are informative in predicting future returns. We argue that their decision to disclose target prices reflects a trade-off between three factors: the speed of price adjustment, the exacerbation of certain risks, and reputation considerations. We find supporting evidence: target price disclosures are positively associated with price adjustment speed, the challenges and retaliation from shareholders and sell-side analysts, and proxies of short sellers’ information precision (which contributes to their reputation). We further argue and find evidence that the salience and quantitative nature of target prices contribute to the accelerated price adjustment by reducing investors’ processing costs. Overall, our study sheds light on the economic tradeoffs arising when investors decide to disclose quantitative information.