The Rise of the Equity Lending Market: Implications for Corporate Policies

68 Pages Posted: 15 Dec 2015 Last revised: 12 May 2018

Murillo Campello

Cornell University - Samuel Curtis Johnson Graduate School of Management; National Bureau of Economic Research (NBER)

Rafael Matta

University of Amsterdam - Finance Group

Pedro A. C. Saffi

University of Cambridge - Judge Business School

Date Written: May 7, 2018

Abstract

We model the effect of short selling constraints on corporate policies and empirically show how the equity lending market affects corporate behavior. Firms react to increases in the supply of lendable stocks by repurchasing shares and increasing investment, consistent with the theory that managers respond to manipulative shorting threats by signaling firm value through corporate policies. Firms also save more cash and issue more debt in response to shifts in the supply of lendable stocks. These various policy responses are coordinated and are more pronounced for firms with more liquid stocks, higher growth opportunities, tighter financing constraints, and when managers' personal compensation is more sensitive to stock prices.

Keywords: Equity lending markets, short sales, corporate policies, share repurchases, investment, savings

JEL Classification: G23, G32, G35

Suggested Citation

Campello, Murillo and Matta, Rafael and Saffi, Pedro A. C., The Rise of the Equity Lending Market: Implications for Corporate Policies (May 7, 2018). Available at SSRN: https://ssrn.com/abstract=2703318 or http://dx.doi.org/10.2139/ssrn.2703318

Murillo Campello (Contact Author)

Cornell University - Samuel Curtis Johnson Graduate School of Management ( email )

114 East Avenue
369 Sage Hall
Ithaca, NY 14853
United States

HOME PAGE: http://www.johnson.cornell.edu/Faculty-And-Research/Profile.aspx?id=mnc35

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138

Rafael Matta

University of Amsterdam - Finance Group ( email )

Roetersstraat 11
Amsterdam, 1018 WB
Netherlands

HOME PAGE: http://www1.fee.uva.nl/pp/rmatta/

Pedro A. C. Saffi

University of Cambridge - Judge Business School ( email )

Trumpington Street
Cambridge, CB2 1AG
United Kingdom

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

Register to save articles to
your library

Register

Paper statistics

Downloads
333
rank
80,591
Abstract Views
1,237
PlumX