Price Ceilings, Market Structure, and Payout Policies

79 Pages Posted: 16 Nov 2018 Last revised: 22 Jan 2024

See all articles by Xiongshi Li

Xiongshi Li

Guangxi University of Finance and Economics

Mao Ye

Cornell University; National Bureau of Economic Research (NBER)

Miles Zheng

Texas Christian University - M.J. Neeley School of Business

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. We estimate that price ceilings and reduced market-structure frictions explain 18% of the secular increase in share repurchases. Meanwhile, these two frictions still 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 Ceilings, 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)

Cornell University ( email )

349 Sage Hall
114 E Ave
ITHACA, NY 148536201
United States
6072559509 (Phone)

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Miles Zheng

Texas Christian University - M.J. Neeley School of Business ( email )

Fort Worth, TX 76129
United States

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