Authors: | Kranz, Sebastian Löffler, Gunter Posch, Peter N. |
Title: | Predatory short sales and bailouts |
Language (ISO): | en |
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 predatory trading short sales |
URI: | http://hdl.handle.net/2003/36232 http://dx.doi.org/10.17877/DE290R-18246 |
Issue Date: | 2017 |
Appears in Collections: | Sonderforschungsbereich (SFB) 823 |
Files in This Item:
File | Description | Size | Format | |
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DP_2317_Kranz_Löffler_Posch.pdf | DNB | 408.95 kB | Adobe PDF | View/Open |
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