Price ceilings, market structure, and payout policies

Xiongshi Li, Mao Ye and Miles Zheng

Journal of Financial Economics, 2024, vol. 155, issue C

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 (search for similar items in EconPapers)
JEL-codes: G14 G32 G35 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:155:y:2024:i:c:s0304405x24000412

DOI: 10.1016/j.jfineco.2024.103818

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