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Price Ceiling, Market Structure, and Payout Policies

Author

Listed:
  • Mao Ye
  • Miles Zheng
  • Xiongshi Li

Abstract

To prevent firms from manipulating prices, U.S. regulators set price ceilings for open-market share repurchases. We find that market structure reforms in the 1990s and 2000s dramatically increased share repurchases because they relaxed constraints that prevent firms from competing with other traders under price ceilings. The 2016 Tick Size Pilot, a controlled experiment that partially reversed previous reforms, significantly reduced share repurchases. Market structure frictions provide a unified explanation for two puzzles: the dividend puzzle exists because previous research has overlooked market structure frictions; share repurchases increase relative to dividends over time because market structure reforms gradually reduce these frictions.

Suggested Citation

  • Mao Ye & Miles Zheng & Xiongshi Li, 2020. "Price Ceiling, Market Structure, and Payout Policies," NBER Working Papers 28054, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:28054
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    Cited by:

    1. Li, Sida & Wang, Xin & Ye, Mao, 2021. "Who provides liquidity, and when?," Journal of Financial Economics, Elsevier, vol. 141(3), pages 968-980.

    More about this item

    JEL classification:

    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy

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