Short Reports: To Respond or Not to Respond

To provide insights and data on current trends, our Research Center of Excellence analyzed 45 short reports that have been issued between 2022 and 2023 to date, across market caps and sectors, to identify if and how the targeted companies responded. 

Key Findings: 

• Trading Volume: On average, short report publications resulted in an average daily trading volume spike of 217% versus the day prior, and it took at least one week after the release for trading activity to normalize
• Immediate Response (16%): Target companies who issued responses on the same day as the published short report; these companies were associated with a significant (-27.0%) ‘day of’ decrease, on average
• Delayed Response (16%): Target companies who issued responses at least one day following a published short report (average is 3 days); these companies were associated with a modest decline of (-2.2%) ‘day of’, but a larger 7-day decline of (-12.5%), on average
• No Response (68%): Target companies who chose not to issue any direct response to the short report; these companies saw a (-3.4%) ‘day of’ decline, and a modest 90-day decline (-0.8%) relative to the other groups’ double-digit declines 
• Delivery Mechanism: In terms of how companies delivered their responses, 100% issued a press release and 14% supplementally addressed the short report during management prepared remarks on the subsequent earnings call
• Response Content: In general, responses were short and concise, including the following characteristics: denial of allegations (86%), questioning source credibility (71%), rebutting certain allegations (43%), announcing internal review (29%), and enacting litigation against activist (21%) 

Selected Best Practices… 

• Develop a comprehensive playbook to address allegations: 
• Monitor your short interest 
• Conduct a Voice of Investor® Perception Study

…and Strategies When Confronted with a Short Report 

• Evaluate the severity of the report and be unified internally on response strategy
• Engage in direct conversations with key stakeholders ahead of any public announcement and avoid an emotional response
• Avoid underappreciating the impact that short reports can have on broader investor sentiment