Are short sellers stakeholders?

This paper analyses the role of short sellers in the context of stakeholder theory and poses the question: should short sellers be considered as stakeholders? The paper examines the conditions under which short sellers operate and how short selling can be a profitable activity. Next the paper considers the view of short sellers from the perspective of the finance literature and this perspective is contrasted with concerns which are frequently expressed in the news media about the activities of short sellers. The constraints on short selling are discussed, together with the phenomenon of optimism in analysts’ forecasts which is believed to support ‘high’ share prices. The usefulness of the preceding analysis is then discussed in the context of stakeholder theory and the paper discusses some potential policy implications in terms of corporate governance and financial reporting. The paper concludes that short sellers can legitimately be regarded as stakeholders and, indeed, encouraging short sellers to operate more effectively in the market as well as providing fuller disclosure of their activities could provide a useful anti-dote to some of the excessive and unjustified share price rise which have been seen in recent years in failing companies.