Katsushi Suzuki

Abstract We use a Japanese dataset with unique regulatory features to examine information absorption in stocks with short‐selling constraints. Japanese stock exchanges place short‐sales restrictions on a specific subset of stocks and have distinctive regulations pertaining to seasoned equity offerings (SEOs). In sharp contrast to the United States, no offer‐related information is released on the Japanese SEO issue date. We observe a significant price reaction on the issue date only for short‐ sales restricted stocks, manifested when additional shares are introduced. We posit that the phenomenon is attributable to short‐sales restrictions causing a delayed reaction to the stale publicly available information, to which the market has already reacted at its announcement.