The Rise of the Equity Lending Market: Implications for Corporate Policies

Posted: 15 Dec 2015 Last revised: 14 Nov 2020

See all articles by Murillo Campello

Murillo Campello

Cornell University - Samuel Curtis Johnson Graduate School of Management; National Bureau of Economic Research (NBER)

Rafael Matta

SKEMA Business School - Université Côte d'Azur

Pedro A. C. Saffi

University of Cambridge - Judge Business School

Date Written: September 7, 2019

Abstract

We show how the equity lending market affects corporate behavior. Firms react to a decline in the cost to short their stocks by repurchasing shares and increasing investment, consistent with the theory that managers respond to manipulative shorting threats by signaling firm value through observable corporate policies. Firms also save more cash and issue more debt in response to declines in stock loan fees. These policy responses are internally coherent and are more pronounced for firms with more illiquid stocks, higher growth opportunities, and higher governance standards.

Keywords: Equity lending markets, short sales, corporate policies, share repurchases, investment, savings, trading frictions

JEL Classification: G23, G32, G35

Suggested Citation

Campello, Murillo and Matta, Rafael and Saffi, Pedro A. C., The Rise of the Equity Lending Market: Implications for Corporate Policies (September 7, 2019). Available at SSRN: https://ssrn.com/abstract=2703318 or http://dx.doi.org/10.2139/ssrn.2703318

Murillo Campello (Contact Author)

Cornell University - Samuel Curtis Johnson Graduate School of Management ( email )

114 East Avenue
369 Sage Hall
Ithaca, NY 14853
United States

HOME PAGE: http://www.johnson.cornell.edu/Faculty-And-Research/Profile.aspx?id=mnc35

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138

Rafael Matta

SKEMA Business School - Université Côte d'Azur ( email )

60 rue Dostoïevski
Sophia Antipolis, 06902
France

HOME PAGE: http://https://sites.google.com/site/almeidadamatta/

Pedro A. C. Saffi

University of Cambridge - Judge Business School ( email )

Trumpington Street
Cambridge, CB2 1AG
United Kingdom

HOME PAGE: http://www.pedrosaffi.com

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