This paper examines the trading behavior of firms subject to mergers or hostile takeovers and proxy contests. Our goal is to determine if short sales or naked shorting is used to exploit Hu and Black’s morphable ownership properties in an attempt to gain excessive ownership rights during proxy or merger contests. We use likelihood, censored data, and duration methods to examine the trading trends related to short sales and proxies for short sales, as well as naked short equities. Using previously unavailable data for NASDAQ, AMEX, and NYSE firms, we to consider the impact of shorting on corporate control. seeking This paper to enhances our understanding of the equity market and extends prior work on short interest, particularly naked shorting and its impact on the multiplicity of affected shares., regulatory efforts to control and returns of naked shorted issues. We find support for the hypothesis that investors use shorting techniques to acquire additional voting interest in proxy or merger contests.
