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Institutional investors' holdings surrounding equity rights offerings
KTH, School of Industrial Engineering and Management (ITM), Industrial Economics and Management (Dept.), Industrial Dynamics (Closed 20130101).
2012 (English)In: Global Finance Journal, ISSN 1044-0283, E-ISSN 1873-5665, Vol. 23, no 2, 125-140 p.Article in journal (Refereed) Published
Abstract [en]

We examine shareholding surrounding Swedish rights offerings using detailed information on the ownership in firms. We analyze shareholding levels and their changes for domestic and foreign institutional investors. As institutional holdings change, domestic institutions increase their holdings more than foreign institutions. Our examination of low and high buying activities by institutional investors surrounding rights offerings shows no stock picking ability, thus not supporting the "smart-money hypothesis" (Gibson et al., 2004). We also find that investor domicile influences firm value following the offering. Overall, foreign investors exhibit a strong and opposite directional reaction to adverse selection costs than domestic investors.

Place, publisher, year, edition, pages
2012. Vol. 23, no 2, 125-140 p.
Keyword [en]
Domiciles, Equity offerings, Institutional ownership, Rights offerings
National Category
Economics and Business
URN: urn:nbn:se:kth:diva-104921DOI: 10.1016/j.gfj.2012.06.002ScopusID: 2-s2.0-84865162351OAI: diva2:567873

QC 20121114

Available from: 2012-11-14 Created: 2012-11-14 Last updated: 2013-05-15Bibliographically approved
In thesis
1. Essays on Share Repurchases and Equity Ownership
Open this publication in new window or tab >>Essays on Share Repurchases and Equity Ownership
2013 (English)Doctoral thesis, comprehensive summary (Other academic)
Abstract [en]

This thesis comprises five empirical essays using Swedish data. Three of the essays examine open market share repurchases, one essay investigates changes in investors’ shareholdings surrounding equity rights offerings (ROs), and the last essay investigates owner-managers’ equity portfolio choices.

The first essay examines stock performance around initiation announcements of open market share repurchase programs, the price impact of repurchase trading and the long-run stock performance following the initiation announcements. The study uses a unique data set of initiation announcements and actual share repurchases conducted by firms listed on the Stockholm Stock Exchange (SSE). The results show that initiation announcements of open market repurchase programs exhibit a 2 day abnormal return (AR) of 2% on average. The price impact on the actual repurchase days is positively correlated with the daily repurchase volume, and is both statistically and economically significant during the first 3 repurchase days in a repurchase program. The long-run abnormal stock performance is positively associated with the fraction of shares bought in the program and is on average 7% for the first year following the initiation announcement. The results indicate that repurchase trading provides price support and that the market participants detect and perceive the initiation announcement and the first repurchase days in a repurchase program as a signal of undervaluation.

The second essay examines differences in the market performance of Swedish firms that initiate repurchase programs infrequently (1-2 programs), occasionally (3-4 programs) and frequently (5 or more programs) over the period 2000-2009. It is found that infrequent repurchase programs are greeted with a stronger positive reaction than occasional and frequent programs. However, over the long-term, infrequent repurchase programs show no AR while occasional and frequent repurchase programs show significant positive ARs. A positive relationship between AR and repurchase size is documented for all types of repurchase programs.

The third essay examines the market liquidity impact of open market share repurchases in an electronic order-driven market. The study uses a detailed data set of daily repurchase transactions on the SSE together with intraday data on bid-ask spreads and order depths which enables an investigation of the liquidity effects on the actual repurchase days. It is found that repurchase trades inside the order-driven trading system contribute to market liquidity through narrower bid-ask spreads and deeper market depths. After controlling for trading volume, price and volatility, a significant decrease of the bid-ask spread on repurchase days relative to surrounding non-repurchase days is still found. However, repurchases executed as block trades outside the order-driven trading system have a detrimental effect on the bid-ask spread, consistent with a negative response to the presence of informed managerial trading.

The fourth essay examines changes in equity ownership surrounding ROs by firms listed on the SSE. The results show that domestic individual investors on average reduce their shareholdings following rights issues, whereas domestic institutional investors and foreign investors increase their holdings. However, when ownership changes are adjusted with changes in ownership in matched non-issuing firms, it is documented that domestic institutions significantly increase their shareholdings in RO firms, whereas foreign investors decrease their holdings in these firms. A positive (negative) association between the 6 month benchmark adjusted return following the offering and the change in shareholdings by foreign investors (domestic institutional investors) is also documented.

Finally, the fifth and last essay investigates how Swedish owner-managers (CEO or Chairman) invest in the Swedish stock market conditional on a major investment in their own firm. No evidence is found that owner-managers seek diversification benefits when they invest in other Swedish stocks. In general, they choose other stocks that show higher correlation among themselves than the average Swedish stocks. It is also found that owner-managers within high-tech industries invest significantly more of their total Swedish stock investments in IT stocks than owner-managers within other industries.

Place, publisher, year, edition, pages
Stockholm: KTH Royal Institute of Technology, 2013. viii, 147 p.
Trita-IEO, ISSN 1100-7982 ; 2013:03
Share repurchases, Buybacks, Stock performance, Liquidity, Rights offerings, Equity ownership, Portfolio choice, Owner-managers, Stockholm Stock Exchange, NASDAQ OMX Stockholm
National Category
Business Administration
urn:nbn:se:kth:diva-122236 (URN)978-91-7501-728-0 (ISBN)
Public defence
2013-06-04, F3, Lindstedtsvägen 26, KTH, Stockholm, 10:00 (English)

QC 20130515

Available from: 2013-05-15 Created: 2013-05-14 Last updated: 2013-05-15Bibliographically approved

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