Market Structure and Corporate Payout Policy: Evidence from a Controlled Experiment
53 Pages Posted: 16 Nov 2018 Last revised: 29 Mar 2019
Date Written: March 14, 2019
In 2016, the Securities and Exchange Commission increased tick size for 1,200 randomly selected firms and imposed restrictions on dark-pool trading on 400 of them. We find that firms reduce share repurchases by 67% and reduce total payouts by 50% when they face constraints in both stock exchanges and dark pools. Surprisingly, firms with larger increases in depth reduce their payouts more because rule 10b-18 discourages issuers from using market orders, turning a market with great depth into an illiquid market for them. The conflicts between rule 10b-18 and the newly imposed trade-at rule also contribute to reductions in payouts.
Keywords: tick size, dark pool, payout policy, regulation, market liquidity
JEL Classification: G10, G18, G35
Suggested Citation: Suggested Citation