HIDDEN IN PLAIN SIGHT: DECODING SHORT SELLER TACTICS TO DETECT FRAUDULENT ACCOUNTING PRACTISES

This thesis investigates the investigative methodologies employed by activist short sellers to identify and expose fraudulent accounting practices in modern financial markets. Historically perceived as market disruptors, this study argues that activist short sellers function as sophisticated external governance mechanisms that facilitate price discovery and market integrity by uncovering financial opaqueness that traditional gatekeepers, such as regulators and auditors, often overlook. To demonstrate this, the thesis adopts a multi-stage empirical approach. First, a systematic analysis is conducted on 19 high-profile short-selling campaigns performed by three prominent activist short-selling firms between 2011 and 2025. Subsequently, recurring qualitative and quantitative patterns identified in these reports are operationalized into a novel machine learning system based on 13 forensic features. This system is then tested against a dataset of Italian listed companies sourced from Orbis to evaluate the real-world applicability of such an instrument. The primary goal of this research is to provide a scalable, data-driven framework for modern fraud detection built upon empirical observations. In doing so, it offers valuable insights for auditors, compliance officers, and regulatory authorities seeking to enhance market surveillance within an increasingly complex global financial landscape.