Price Ceiling, Market Structure, and Payout Policies

Mao Ye, Miles Zheng and Xiongshi Li

No 28054, NBER Working Papers from National Bureau of Economic Research, Inc

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.

JEL-codes: G18 G35 (search for similar items in EconPapers)
Date: 2020-11
New Economics Papers: this item is included in nep-fmk
Note: AP CF
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