Short-Sale Constraints and Corporate Investment

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 (201...

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Bibliographic Details
Published in:Journal of financial and quantitative analysis 2023-09, Vol.58 (6), p.2489-2521
Main Authors: Deng, Xiaohu, Gupta, Vishal K., Lipson, Marc L., Mortal, Sandra
Format: Article
Language:English
Subjects:
Capital expenditures
Companies
Investments
Short sales
Small business
Stock prices
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Summary: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.
ISSN:0022-1090
1756-6916
DOI:10.1017/S0022109022000849