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Essays on Share Repurchases and Equity Ownership
KTH, School of Industrial Engineering and Management (ITM), Industrial Economics and Management (Dept.), Entrepreneurship and innovation.
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.
Series
Trita-IEO, ISSN 1100-7982 ; 2013:03
Keyword [en]
Share repurchases, Buybacks, Stock performance, Liquidity, Rights offerings, Equity ownership, Portfolio choice, Owner-managers, Stockholm Stock Exchange, NASDAQ OMX Stockholm
National Category
Business Administration
Identifiers
URN: urn:nbn:se:kth:diva-122236ISBN: 978-91-7501-728-0 (print)OAI: oai:DiVA.org:kth-122236DiVA: diva2:621450
Public defence
2013-06-04, F3, Lindstedtsvägen 26, KTH, Stockholm, 10:00 (English)
Opponent
Supervisors
Note

QC 20130515

Available from: 2013-05-15 Created: 2013-05-14 Last updated: 2013-05-15Bibliographically approved
List of papers
1. The price impact of open market share repurchases
Open this publication in new window or tab >>The price impact of open market share repurchases
2012 (English)Conference paper, Oral presentation only (Other academic)
Abstract [en]

This paper examines the stock performance around initiation announcements of open market share repurchase programs, the price impact of repurchase trading and the long-run abnormal stock performance following the initiation announcements in a European regulatory framework. The study uses a unique dataset on initiation announcements and actual repurchases conducted by firms listed on the Stockholm Stock Exchange during the period 2000-2009. The results show that initiation announcements of open market repurchase programs exhibit a two-day abnormal return of approximately 2%. 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 approximately 7% 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.

Keyword
Share repurchases, Repurchase trading, Stock performance, Stockholm Stock Exchange, NASDAQ OMX Stockholm
National Category
Business Administration
Identifiers
urn:nbn:se:kth:diva-122239 (URN)
Conference
Eastern Finance Association Annual Meeting, Boston 2012
Note

QC 20130515

Available from: 2013-05-14 Created: 2013-05-14 Last updated: 2013-05-15Bibliographically approved
2. Share Repurchases: Does Frequency Matter?
Open this publication in new window or tab >>Share Repurchases: Does Frequency Matter?
2013 (English)Conference paper, Oral presentation only (Refereed)
Abstract [en]

We examine differences in 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, and examine the relationship between abnormal return and repurchase size in repurchase months. We find that infrequent repurchase programs are greeted with a stronger positive reaction than occasional and frequent programs. However, over long term, infrequent repurchase programs show no abnormal return while occasional and frequent repurchase programs show a significant positive abnormal return. A positive relationship between abnormal return and repurchase size in repurchase months is documented on average for all types of repurchase programs.

Keyword
Share repurchases, Liquidity, Repurchase trading, Payout policy, Stockholm Stock Exchange, NASDAQ OMX Stockholm
National Category
Business Administration
Identifiers
urn:nbn:se:kth:diva-122241 (URN)
Conference
Financial Management Association Annua Meeting, Dallas 2008
Note

QC 20130515

Available from: 2013-05-14 Created: 2013-05-14 Last updated: 2013-05-15Bibliographically approved
3. The liquidity impact of open market share repurchases
Open this publication in new window or tab >>The liquidity impact of open market share repurchases
2013 (English)Conference paper, Oral presentation only (Refereed)
Abstract [en]

We examine the market liquidity impact of open market share repurchases in a computerized order driven market. Using a detailed dataset of daily repurchase transactions on the Stockholm Stock Exchange together with intraday data on bid-ask spreads and order depths enable us to examine liquidity effects on the actual repurchase days. Overall, we find that repurchase trades inside the order driven trading system contributes to market liquidity through narrower bid-ask spreads and deeper market depths. After controlling for total trading volume, price, and volatility we still find a significant decrease of the bid-ask spread on repurchase days relative to surrounding non-repurchase days. 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.

Keyword
Share repurchases, Liquidity, Repurchase trading, Payout policy, Stockholm Stock Exchange, NASDAQ OMX Stockholm
National Category
Business Administration
Identifiers
urn:nbn:se:kth:diva-122242 (URN)
Conference
Financial Management Association Annual Meeting, Dallas 2008 Midwest Finance Association Annual Meeting, Minneapolis 2007 Eastern Finance Association Annual Meeting, Philadelphia 2006
Note

QC 20130515

Available from: 2013-05-14 Created: 2013-05-14 Last updated: 2013-05-15Bibliographically approved
4. Institutional investors' holdings surrounding equity rights offerings
Open this publication in new window or tab >>Institutional investors' holdings surrounding equity rights offerings
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.

Keyword
Domiciles, Equity offerings, Institutional ownership, Rights offerings
National Category
Economics and Business
Identifiers
urn:nbn:se:kth:diva-104921 (URN)10.1016/j.gfj.2012.06.002 (DOI)2-s2.0-84865162351 (Scopus ID)
Note

QC 20121114

Available from: 2012-11-14 Created: 2012-11-14 Last updated: 2017-12-07Bibliographically approved
5. Owner-Managers’ Equity Portfolio Choice
Open this publication in new window or tab >>Owner-Managers’ Equity Portfolio Choice
2006 (English)In: Corporate Ownership & Control, ISSN 1727-9232, E-ISSN 1810-3057, Vol. 4, no 1, 37-48 p.Article in journal (Refereed) Published
Abstract [en]

Some studies have shown that managers concentrate large fractions of their wealth in the equity of their own firm. In this paper we use a unique dataset and investigate how Swedish owner-managers invest remaining wealth conditional on a major investment in their own firm. We find no[JR1] evidence that owner-managers seek diversification benefits when they invest remaining wealth. Instead some owner-managers invest remaining wealth in the industry where they already have a substantial capital investment. We conclude that some owner-managers seek to exploit their industry-specific superior information when they invest wealth not tied up in their own firms.

Keyword
Portfolio choice, Under-diversification, Owner-managers
National Category
Business Administration
Identifiers
urn:nbn:se:kth:diva-122243 (URN)
Note

QC 20130515

Available from: 2013-05-14 Created: 2013-05-14 Last updated: 2017-12-06Bibliographically approved

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