Price Ceiling, Market Structure, and Payout Policies

60 Pages Posted: 16 Nov 2018 Last revised: 30 Mar 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 firms from manipulating prices, U.S. regulators set price ceilings for open-market share repurchases. We find that market-structure reforms in the 1990s and 2000s dramatically increased share repurchases because they relaxed constraints on issuers seeking to compete with other traders under price ceilings. The Tick Size Pilot Program, a controlled experiment that partially reversed previous reforms, significantly reduced share repurchases. Price-ceiling and market-structure frictions provide a unified explanation of two puzzles: the dividend puzzle exists because issuers encounter these repurchase frictions; share repurchases increase relative to dividends over time because market structure reforms and innovations gradually reduce these frictions.

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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