Price Ceiling, Market Structure, and Payout Policies

70 Pages Posted: 16 Nov 2018 Last revised: 19 Sep 2022

See all articles by Xiongshi Li

Xiongshi Li

Guangxi University of Finance and Economics

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

To prevent issuers from inflating their share prices, SEC Rule 10b-18 sets price ceilings on share repurchases through open markets. We find that market-structure reforms in the 1990s and 2000s dramatically increased share repurchases because they relaxed constraints on issuers competing with other buyers under price ceilings. The Tick Size Pilot Program, a controlled experiment that partially reversed previous reforms, significantly reduced share repurchases. Therefore, price ceilings and reduced market-structure frictions provide one explanation for the secular increase in share repurchases over dividends. Meanwhile, these two frictions always exist, which explains why share repurchases have not crowded out dividends entirely.

Keywords: Market Structure, Share Repurchase, Queue Competition, Dark Pool, Regulation

JEL Classification: G18, G35

Suggested Citation

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

Xiongshi Li

Guangxi University of Finance and Economics ( email )

189, Daxue Xi Road
Nanning, Guangxi 530007
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

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