محدودیت های فروش استقراضی، تصاحب و ثروت سهامداران در بلند مدت

In this paper we consider a situation in which a firm may be able to influence the investors’ ability to short-sell its stock. We analyze the effect short-selling restrictions have on the market price and the subsequent effect generated on the market for corporate control. More precisely, we argue that short-selling restrictions may lead to exclusion of pessimistic beliefs and may therefore inflate prices. Thus, if a company is poorly managed and has a stock with strong short-selling restrictions, a profitable takeover will not emerge because of the high stock price. The raider may not have the incentives to acquire the company as its price will be above its fundamental value, conditional on takeover, even accounting for the potential benefits of takeover. We then argue that such effects are detrimental to long-run shareholders and that a value-maximizing strategy is to have a stock with no short-selling restrictions.

In this paper we are interested in the relationship between short-selling restrictions, overvalued equity, managerial decision-making, takeovers and the welfare of long-run shareholders.1 We first consider a simple model in which a firm may be able to influence the investors’ ability to short-sell its stock, by influencing the supply and demand (e.g., initially choosing with whom to place convertible securities—placing with hedge funds would increase demand, as they hedge their positions, and placing with other institutions would increase supply and decrease demand). We analyze the effect short-selling restrictions have on the market price and the subsequent effect generated on the market for corporate control. More precisely, we argue that short-selling restrictions may lead to exclusion of pessimistic beliefs and may therefore inflate prices (as in Miller, 1977). Thus, if a company is in a poor situation (be it because of the economy or because the manager is doing something wrong) and has a stock with strong short-selling restrictions, a profitable takeover will not emerge because of the high stock price. The raider may not have the incentives to acquire the company as its price will be above its fundamental value, conditional on takeover, even accounting for the potential benefits of takeover. We then argue that such effects are detrimental to long-run shareholders and that a value-maximizing strategy is to have a stock with no short-selling restrictions. In another, more elaborate, model we allow for additional effects through direct managerial decision-making. I.e., we enhance the initial model by allowing the manager to choose an effort level. So, now we make a clear distinction between the situation that a firm is poorly managed and the economy is doing well vis-à-vis a situation where the manager is doing well but the economy is doing poorly and hence the company is suffering for reasons outside management’s control. The manager’s effort choice is costly and depends on his compensation package. Effort affects the long-run expected value of the firm, and therefore may also affect prices. We then analyze the model trying to understand how effort choice, takeovers and short-selling constraints interact to generate overvalued equity in the short-run, less takeovers and lower long-run values of the firm. As a final note the reader should be aware that, even though we write and analyze the model in terms of takeovers, there is nothing special about this. One could think about an alternative interpretation where instead of a takeover what happens is that the board fires the manager when it appears profitable to do so. I.e., the board would replace the manager whenever the expected value generated by his replacement is higher than what the market currently assess as this manager’s added value, which is the same condition under which takeovers may happen.