We examine short sellers’ use of textual information in annual reports for shorting activities. We find that more uncertainty words in annual reports are associated with greater shorting volume. Short selling motivated by textual information negatively predicts stock price reaction after the filing date of 10-K reports. We further provide some evidence that textual information used by short sellers are related to revisions of analysts’ earnings forecasts, changes in firm fundamentals, and increasing crash risk subsequently. Our results suggest that textual information in annual reports forms an important part of short sellers’ information advantage. 

Keywords: Short selling; Annual reports; Textual analysis; Stock returns; Information environment

JEL Classification: G12; G14; G4; M41; M42​