Market Structure and Corporate Payout Policy

38 Pages Posted: 16 Nov 2018 Last revised: 20 Jun 2020

See all articles by Xiongshi Li

Xiongshi Li

Guangxi University

Mao Ye

University of Illinois at Urbana-Champaign; National Bureau of Economic Research (NBER)

Miles Zheng

University of Illinois at Urbana-Champaign - Department of Finance

Date Written: September 28, 2018

Abstract

Market structure friction has first-order effects on corporate payouts. The 1994 NASDAQ Manning Rule, the 1997 tick size reduction, the 2001 decimalization, and the jumpstart of NYSE algorithmic trading in 2003 dramatically increased share repurchases, whereas the 2016 Tick Size Pilot, which partially reversed these reforms, significantly reduced share repurchases. Our results provide the first unified interpretation that helps to resolve two puzzles in the payout literature. The dividend puzzle exists because previous research has overlooked the microstructure cost of executing share repurchases. Buybacks increase relative to dividends over time because market structure reforms gradually reduce the cost of repurchases.

Keywords: Market Microstructure, Share Repurchase, Queuing, Dark Pool, Regulation

JEL Classification: G10, G18, G35

Suggested Citation

Li, Xiongshi and Ye, Mao and Zheng, Miles, Market Structure and Corporate Payout Policy (September 28, 2018). Available at SSRN: https://ssrn.com/abstract=3254585 or http://dx.doi.org/10.2139/ssrn.3254585

Xiongshi Li

Guangxi University ( email )

East Daxue Road #100
Nanning, Guangxi 530004
China

Mao Ye (Contact Author)

University of Illinois at Urbana-Champaign ( email )

406 Wohlers
1206 South 6th Street
Champaign, IL 61820
United States
2172440474 (Phone)

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Miles Zheng

University of Illinois at Urbana-Champaign - Department of Finance ( email )

1206 South Sixth Street
Champaign, IL 61820
United States

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
189
Abstract Views
1,497
rank
174,700
PlumX Metrics