Working Paper: NBER ID: w28054
Authors: Mao Ye; Miles Zheng; Xiongshi Li
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.
Keywords: No keywords provided
JEL Codes: G18; G35
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| market structure reforms in the 1990s and 2000s (L10) | increase in share repurchases (G34) |
| tick size pilot (L93) | increased monitoring costs due to market structure frictions (D49) |
| tick-constrained firms (D22) | drop in share repurchases (G34) |
| installation of automated quotes by NYSE in 2003 (C88) | increase in share repurchases (G34) |
| 2016 tick size pilot (F38) | reduction in share repurchase payouts (G35) |