The Rise of the Equity Lending Market: Implications for Corporate Policies
Posted: 15 Dec 2015 Last revised: 14 Nov 2020
Date Written: September 7, 2019
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: Suggested Citation