Short Sale Constraints and Corporate Investment

47 Pages Posted: 23 May 2016 Last revised: 15 Dec 2019

See all articles by Xiaohu Deng

Xiaohu Deng

University of Tasmania

Vishal K. Gupta

University of Alabama - Department of Management

Marc L. Lipson

University of Virginia - Darden School of Business

Sandra Mortal

University of Alabama - Culverhouse College of Commerce & Business Administration

Date Written: December 13, 2019

Abstract

We examine the effect of short sale constraints on corporate investment in a sample of non-US regulatory regime shifts. As expected, regulatory changes reducing short sale constraints are associated with stock price declines, reduced capex, and lower asset growth. In contrast to US studies, however, we find the price decline and investment effects are more pronounced for larger firms. We also show that the investment effects are more pronounced for firms that relied previously on external financing. Our results suggest the investment effect in non-US economies is not a manifestation of capital constraints, but may arise from equity mispricing alone.

Keywords: Short sale constraints; Corporate investment; Investment efficiency; Equity mispricing; Asset growth; Capital raising

Suggested Citation

Deng, Xiaohu and Gupta, Vishal K. and Lipson, Marc Lars and Mortal, Sandra, Short Sale Constraints and Corporate Investment (December 13, 2019). Available at SSRN: https://ssrn.com/abstract=2782546 or http://dx.doi.org/10.2139/ssrn.2782546

Xiaohu Deng

University of Tasmania ( email )

Tasmanian School of Business and Economics
Private bag 84
Hobart, TAS 7001
Australia

Vishal K. Gupta

University of Alabama - Department of Management ( email )

101 Paul W. Bryant Dr.
Box 870382
Tuscaloosa, AL 35487
United States

Marc Lars Lipson

University of Virginia - Darden School of Business ( email )

P.O. Box 6550
Charlottesville, VA 22906-6550
United States
434-924-4837 (Phone)
434-243-5021 (Fax)

HOME PAGE: http://www.darden.virginia.edu/faculty/lipson.htm

Sandra Mortal (Contact Author)

University of Alabama - Culverhouse College of Commerce & Business Administration ( email )

Culverhouse College of Business
Tuscaloosa, AL 35487-0223
United States

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