The Effect of Short Sale Restrictions on Corporate Managers

42 Pages Posted: 8 Dec 2020 Last revised: 25 Apr 2023

See all articles by Baixiao Liu

Baixiao Liu

Peking University HSBC Business School

John J. McConnell

Purdue University

Andrew Schrowang

Florida State University - Department of Finance

Date Written: December 28, 2020

Abstract

We examine how the exemption of short sale uptick tests due to the Regulation SHO pilot program affects managers’ decisions to abandon value-reducing acquisition attempts. We find that when deciding whether to abandon value-reducing acquisition attempts during the program, managers of pilot firms, whose stocks are less subject to short selling impediments, are more sensitive to stock price changes than managers of nonpilot firms. We find no difference in managers’ sensitivity prior to nor post SHO. These results highlight a cost of short selling restrictions: market prices become less informative. The message is that regulators should consider the loss of market information when weighing the costs and benefits of restrictions on the trading of market participants.

Keywords: Short Sale Restrictions, Short Selling, Regulation SHO, Pilot Program

JEL Classification: G14, G18, G30, G34

Suggested Citation

Liu, Baixiao and McConnell, John J. and Schrowang, Andrew, The Effect of Short Sale Restrictions on Corporate Managers (December 28, 2020). Available at SSRN: https://ssrn.com/abstract=3732939 or http://dx.doi.org/10.2139/ssrn.3732939

Baixiao Liu (Contact Author)

Peking University HSBC Business School ( email )

John J. McConnell

Purdue University ( email )

MGMT, KRAN
403 West State St.
West Lafayette, IN 47907-2056
United States
765-494-5910 (Phone)
765-494-7863 (Fax)

Andrew Schrowang

Florida State University - Department of Finance ( email )

821 Academic Way, RBA 311
P.O. Box 3061110
Tallahassee, FL 32306-1042
United States

HOME PAGE: http://sites.google.com/view/andrew-schrowang/home

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

Paper statistics

Downloads
96
Abstract Views
803
Rank
431,993
PlumX Metrics