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. / <p>QC 20130515</p>

The purpose of this thesis is to determine if there are any significant abnormal returns arising when companies announces an upcoming rights offering on the Stockholm exchange. The thesis also considers possible reasons as to why the market react in different ways by examining the offerings’ underlying motives. The thesis adopts a quantitative approach, implemented by adeductive strategy. An event study has been used to study the market movements throughout the RO-announcement. The abnormal return is calculated according to the CAR-model which is later tested for its significance. A multiple linear regression is conducted in order to discover relations between the abnormal return and different independent variables. The main frame of theoretical reference is the Signalling Hypothesis as well as the Efficient Market Hypothesis. The study is also inspired by previous research on the subject, all of which are presented in the chapter. These include both recent and older studies on both American, Asian and European markets. Results conclude a significant negative abnormal return during the event window. There is a significant relationship between the underlying motive of the rights offerings and its abnormal return. However, no significant relationship can be stated between the frequency of the rights offering and its abnormal return. Underlying motive and frequency of RO’s explain theabnormal return by 10,11%.

Agency Costs of Controlling Minority Shareholders (coauthored with Henrik Cronqvist) estimates the agency costs of controlling minority shareholders (CMSs) using a panel of Swedish listed firms. CMSs are owners who have a control stake of the firm’s votes while owning only a minority fraction of the firm’s equity. The study documents that families in control are almost exclusively CMSs through an extensive use of dual-class shares. The results show that increased ownership of votes by a controlling owner is associated with an economically and statistically significant decrease in firm value, but that the decrease in firm value is significantly larger for firms with family CMSs than for firms with financial institutions or corporations in control. This indicates that the agency costs of family CMSs are larger than the agency costs of other controlling owners.Family Ownership, Control Considerations, and Corporate Financing Decisions: An Empirical Analysis analyzes the relation between concentrated family control and firms’ choice of capital structure for a panel of Swedish listed firms. The results suggest that the capital structure choices made by firms with families in control are influenced by the controlling families’ desire to protect their control, and that the resulting capital structures are likely to increase the agency costs of family control. The Choice between Rights Offerings and Private Equity Placements (coauthored with Henrik Cronqvist) analyzes the determinants of the choice between rights offerings and private equity placements using a sample of rights offerings and private placements made by listed Swedish firms. The results indicate that control considerations explain why firms make uninsured rights offerings. The evidence also suggest that private placements, and to some extent underwritten rights offerings, are made by potentially undervalued firms in order to overcome underinvestment problems resulting from asymmetric information about firm value. Furthermore, private placements are frequently made in conjunction with the establishment of a product market relationship between purchaser and seller, which is consistent with equity ownership reducing contracting costs in new product market relationships. Why Agency Costs Explain Diversification Discounts (coauthored with Henrik Cronqvist and Peter Högfeldt) studies diversification within the real estate industry, in which firms can diversify over property types and geographical regions. Similar to previous studies, this essay documents the existence of a diversification discount. However, the major cause of the diversification discount is not diversification per se but anticipated costs due to rent dissipation in future diversifying acquisitions. Firms expected to pursue non-focusing strategies do indeed diversify more, are valued ex ante at a 20% discount over firms anticipated to follow a focusing strategy, and are predominantly family controlled. The ex ante diversification discount is, therefore, a measure of agency costs.  The Difference in Acquirer Returns between Takeovers of Public Targets and Takeovers of Private Targets shows, for a sample of Swedish takeovers, that the average acquirer abnormal return is positive and significant when the target firm is privately held but insignificant when the target firm is listed on a stock exchange. These results are robust when controlling for sample selection problems and other variables capable of explaining acquirer returns. The evidence is consistent with greater acquirer bargaining power and resolution of information asymmetries in takeovers of private targets. / Diss. Stockholm : Handelshögskolan, 2002