The Real Effects of Short-Selling Constraints

51 Pages Posted: 16 Nov 2011 Last revised: 12 Jun 2014

See all articles by Gustavo Grullon

Gustavo Grullon

Rice University - Jesse H. Jones Graduate School of Business

Sebastien Michenaud

Kellstadt Graduate School of Business

James Weston

Rice University - Jesse H. Jones Graduate School of Business

Date Written: May 30, 2014

Abstract

We use a regulatory experiment (Regulation SHO) that relaxes short-selling constraints on a random sample of US stocks to test whether capital market frictions have an effect on stock prices and corporate decisions. We find that an increase in short-selling activity causes prices to fall, and that small firms react to these lower prices by reducing equity issues and investment. These results not only provide evidence that short-selling constraints affect asset prices, but also confirm that short-selling activity has a causal impact on financing and investment decisions.

Keywords: Corporate Investment, Financing Decisions, Short-selling Constraints, Financial Constraints, Bear raids,

JEL Classification: G31, G32, G12

Suggested Citation

Grullon, Gustavo and Michenaud, Sebastien and Weston, James Peter, The Real Effects of Short-Selling Constraints (May 30, 2014). Available at SSRN: https://ssrn.com/abstract=1959615 or http://dx.doi.org/10.2139/ssrn.1959615

Gustavo Grullon

Rice University - Jesse H. Jones Graduate School of Business ( email )

P.O. Box 2932
Houston, TX 77252-2932
United States
(713) 348-6138 (Phone)
(713) 348-6331 (Fax)

HOME PAGE: http://www.ruf.rice.edu/~grullon/

Sebastien Michenaud (Contact Author)

Kellstadt Graduate School of Business ( email )

1 East Jackson Blvd.
Chicago, IL 60604
United States
(312)362-5001 (Phone)

HOME PAGE: http://www.sebastienmichenaud.com

James Peter Weston

Rice University - Jesse H. Jones Graduate School of Business ( email )

6100 South Main Street
P.O. Box 1892
Houston, TX 77005
United States
713-348-4480 (Phone)
713-348-6331 (Fax)

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