Short‐Selling Constraints and Corporate Payout Policy

33 Pages Posted: 19 Mar 2020

See all articles by Hang Chen

Hang Chen

University of Queensland

Yushu Zhu

University of Queensland - Business School

Liang Chang

Guangdong University of Foreign Studies

Date Written: December 2019

Abstract

This study shows that managers adjust corporate payout policies to counteract intensified short‐selling pressures following the removal of a short‐selling constraint. We use a controlled experiment, the Regulation SHO pilot program, to find that changing the short‐selling rule brings small companies to increase cash dividends, but not to repurchase more shares. Because paying dividends is costly, it is acknowledged as a more reliable signal of stock undervaluation than share repurchase. While our evidence suggests that companies select this payout strategy to deter predatory short sellers, it also shows that a short‐selling activity has a causal effect on corporate payout decisions.

Keywords: Dividend, Payout, Regulation SHO, Share repurchase, Short‐selling constraint

Suggested Citation

Chen, Hang and Zhu, Yushu and Chang, Liang, Short‐Selling Constraints and Corporate Payout Policy (December 2019). Accounting & Finance, Vol. 59, Issue 4, pp. 2273-2305, 2019, Available at SSRN: https://ssrn.com/abstract=3556073 or http://dx.doi.org/10.1111/acfi.12314

Hang Chen (Contact Author)

University of Queensland

St Lucia
Brisbane, Queensland 4072
Australia

Yushu Zhu

University of Queensland - Business School ( email )

Blair Drive
Brisbane
Australia

HOME PAGE: http://https://www.business.uq.edu.au/staff/yushu-elizabeth-zhu

Liang Chang

Guangdong University of Foreign Studies

Collaborative Innovation Center for Silk Road
Guangzhou, Guangdong
China

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