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Short-Sale Constraints and Corporate Investment

Published online by Cambridge University Press:  15 August 2022

Xiaohu Deng ,
Vishal K. Gupta ,
Marc L. Lipson Open the ORCID record for Marc L. Lipson [Opens in a new window]  and
Sandra Mortal
Xiaohu Deng
Affiliation:
University of New South Wales School of Banking and Finance at the UNSW Business School wesley.deng@unsw.edu.au
Vishal K. Gupta
Affiliation:
University of Alabama Department of Management at the Culverhouse College of Business vkgupta@cba.ua.edu
Marc L. Lipson*
Affiliation:
University of Virginia Finance Area at the Darden School of Business
Sandra Mortal
Affiliation:
University of Alabama Department of Economics Finance and Legal Studies at the Culverhouse College of Business scmortal@cba.ua.edu
*
mlipson@virginia.edu (corresponding author)
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Abstract

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In a sample of non-U.S. regulatory regime shifts, we find that expanded short selling is associated with stock price declines, reductions in capital expenditure, and lower asset growth. In a reversal of results found for U.S. stocks in a study of Regulation SHO by Grullon, Michenaud, and Weston (2015), our results are stronger for large firms than for small firms. We also show that this investment effect is stronger for firms that previously relied on outside financing. Our results suggest that short-sale policies affect corporate investment and that this effect is not driven by capital constraints.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 58 , Issue 6 , September 2023 , pp. 2489 - 2521
Creative Commons
Creative Common License - CCCreative Common License - BY
This is an Open Access article, distributed under the terms of the Creative Commons Attribution licence (https://creativecommons.org/licenses/by/4.0), which permits unrestricted re-use, distribution and reproduction, provided the original article is properly cited.
Copyright
© The Author(s), 2022. Published by Cambridge University Press on behalf of the Michael G. Foster School of Business, University of Washington

Footnotes

Previous versions of this article benefited from comments from Thomas Boulton, Alex Butler, Bidisha Chakrabarty, Kathleen Fuller, Gustavo Grullon, Jianlei Han, Pankaj Jain, Christine Jiang, Yelena Larkin, Eunju Lee, Thomas McInish, Vikram Nanda, Michael Schill, Sabatino Silveri, participants at the 2017 AFA PhD Poster Session, 2016 NFA Conference, 2016 SFA Annual Meeting, 2015 FMA Doctoral Consortium, 2017 FMA-Europe, University of Mississippi/University of Memphis Joint PhD Seminar, and seminar participants at the University of Alabama, Hong Kong Baptist University, Macquarie University, Monash University, NEOMA Business School, UNSW Sydney, Saint Louis University, University of Memphis, and Wuhan University. We thank Jarrad Harford (the editor) and Matthew Ringgenberg (the referee) for their comments and suggestions, all of which substantially improved the quality of the paper. All errors remain ours.

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