Posch, Peter N.
|Title:||Predatory short sales and bailouts|
|Abstract:||This paper extends the literature on predatory short selling and bailouts through a joint analysis of the two. We consider a model with informed short sales, as well as uninformed predatory short sales, which can trigger the inefficient liquidation of a firm. We obtain several novel results: A government commitment to bail out insolvent firms with positive probability can increase welfare because it selectively deters predatory short selling without hampering desirable informed short sales. Contrasting a common view, bailouts can be optimal ex ante but undesirable ex post. Furthermore, bailouts in our model are a better policy tool than short selling restrictions. Welfare gains from the bailout policy are unevenly distributed: shareholders gain while taxpayers lose. Bailout taxes allow ex-ante Pareto improvements.|
|Subject Headings:||government bailouts|
short sale bans
|Appears in Collections:||Sonderforschungsbereich (SFB) 823|
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|DP_2317_Kranz_Löffler_Posch.pdf||DNB||408.95 kB||Adobe PDF||View/Open|
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