New evidence on stock buybacks and hard to borrow pricing in securities lending

Do Firms Exploit Mispricing of Their Stock in Their Financing Decisions? Evidence from the Share Lending Market
Paul Schultz
University of Notre Dame

Short sale constrained stocks are overpriced on average. I use borrowing fees, utilization, and IHS Markit’s DCBS measure as proxies for overpricing. I show that the likelihood that a firm conducts an SEO increases with measures of short sale constraints associated with overpricing even after adjusting for firm identity, excess cash, firm age, and past stock returns. Stocks underperform after an SEO if but only if they were short sale constrained. Firms are far more likely to repurchase shares if the stock is not hard-to-borrow. When firms repurchase hard-to-borrow shares, the firm is usually right and shorts are usually wrong.

The full paper is available at

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