I study how hedge funds strategically disclose their private information during short-selling campaigns. Using data on hedge funds' voluntary announcements and daily short positions in the EU market, I document the existence of two groups of funds: Announcers and Followers. Announcers, typically small and young, (1) establish short positions, (2) publish research reports about short targets, and (3) realise profits from the falling price within a short time frame. Followers, usually large, enter at the release of the report and increase their short positions even after announcers exit. To understand the strategic interaction among short sellers, I provide a model to explain how size affects a short seller’s incentive and behaviour. Small funds benefit more from disclosing when facing binding leverage constraints. In contrast, large funds profit from others’ private information by offering capital to price discovery. I characterize the effect of such short-selling campaigns on market efficiency and confirm the model prediction that stocks with lower borrowing costs and larger mispricing are more likely to be announced by hedge funds.

Using new data on mutual funds’ equity lending positions, we find that short sellers borrow shares of different stocks from a different but small set of repeated lenders. Through survey and empirical evidence, we argue that this fragmented, persistent lender structure is driven by myriads of lending-side institutional frictions and contributes to limits-to-arbitrage at the lender-stock level. When existing lenders sell their shares, short sellers struggle to find replacement lenders and get partially squeezed, even when conventional measures suggest lending supply is slack. Consequently, lending fees spike, and stocks become more likely to be overpriced. Ex ante, risks implied by lender structure are priced in equity prices. Overall, our findings suggest that lending-side frictions, a class of frictions unconsidered by prior literature, significantly hamper market efficiency.