Ownership Structure and Short Selling Around the World

Abstract

We study how ownership structure affects equity lending, short selling, and price efficiency in 40 markets globally. Non-institutional block ownership reduces lending supply, whereas foreign institutional ownership increases it, with a larger effect than domestic institutions.  Among institutions, passive and index investors play a particularly large role. We establish causality by exploiting MSCI index additions as plausibly exogenous shocks to ownership structure. Stocks whose ownership facilitates lending also have broader coverage by lending agents and prime brokers, consistent with intermediary connections being a key channel. Such ownership structure translates into greater short-selling activity and more efficient prices.

Keywords: ownership structure, short selling, international financial markets

JEL Classification: G12, G15, F30, G20