Price Ceiling, Market Structure, and Payout Policies

46 Pages Posted: 9 Nov 2020 Last revised: 26 Feb 2021

See all articles by Mao Ye

Mao Ye

University of Illinois at Urbana-Champaign

Miles Zheng

University of Illinois at Urbana-Champaign - Department of Finance

Xiongshi Li

Guangxi University of Finance and Economics

Date Written: November 2020

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 that prevent firms from competing with other traders under price ceilings. The 2016 Tick Size Pilot, a controlled experiment that partially reversed previous reforms, significantly reduced share repurchases. Market structure frictions provide a unified explanation for two puzzles: the dividend puzzle exists because previous research has overlooked market structure frictions; share repurchases increase relative to dividends over time because market structure reforms gradually reduce these frictions.

Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.

Suggested Citation

Ye, Mao and Zheng, Miles and Li, Xiongshi, Price Ceiling, Market Structure, and Payout Policies (November 2020). NBER Working Paper No. w28054, Available at SSRN: https://ssrn.com/abstract=3727130

Mao Ye (Contact Author)

University of Illinois at Urbana-Champaign ( email )

Miles Zheng

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

1206 South Sixth Street
Champaign, IL 61820
United States

Xiongshi Li

Guangxi University of Finance and Economics ( email )

189, Daxue Xi Road
Nanning, Guangxi 530007
China

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
3
Abstract Views
42
PlumX Metrics