ABOUT THE WORK

Xu Hongyi

How the participation of the external informed trader impacts a manager’s share repurchase decisions.

2023

There has been an ongoing heated debate on whether managers use share repurchases for personal benefits and whether additional regulations need to be imposed on firms’ share repurchase activities. This project aims to propose and examine a new channel in the managers’ share repurchase decision.

This project investigated how the participation of the external informed trader impacts a manager’s share repurchase decisions. By introducing an external informed trader to the market, Xu´s conceptual framework demonstrates that the manages tends repurchase fewer shares when the market believes that the external informed trader is involved. This impact is larger for overvalued firms than for undervalued firms. To gauge the market believe in the participation of external informed traders, I utilize firm-level abnormal institutional investor attention. I find that, on average, managers reduce actual share repurchases when institutional investors exhibit higher attention toward the firm. Additionally, as firm-level abnormal institutional attention rises, the likelihood of executing buybacks falls. Moreover, I use market-wide abnormal institutional attention, excluding the firm of interest, as the instrument to control for omitted variables. Using two-stage least square analysis, I consistently find a negative and statistically significant relationship between abnormal institutional attention and actual share repurchases. These findings align with Xu´s model’s prediction, suggesting that managers strategically abstain from repurchasing shares when their firms are under the spotlight. This also provides a novel explanation for why recent literature finds that managers are not using share repurchases for price manipulation, when they liquidate their equity holdings or vest their stock options. Also, it has strong policy implications on deciding the optimal level of the capital gain tax and income tax.

ABOUT THE WORK

Martin Weibel

Regulatory Impacts on Financial Intermediation: Insights from Martin's Research Papers

2023

Martin currently have four working papers and one advanced work in progress on topics related to financial services and financial intermediation within an international context.

In Martins first and main paper he study the cross-sectional effects of Basel regulations on dealer intermediation in the U.S. corporate bond market. Using intra-quarter variation in the intensity of Basel regulatory requirements, Martin document pronounced inventory contractions when regulatory pressure rises near quarter- ends. In contrast to their behavior in shortterm money markets, U.S. bank dealers do not absorb regulatory selling pressure in corporate bonds. Instead, bank dealers direct their selling primarily to nonbank financial intermediaries. In doing so, they fall back on their investor networks to offload investment grade bonds and their nonbank dealer networks to dispose of high-yield bonds. In the aggregate, leverage regulations impair liquidity conditions in the corporate bond market, specifically in balance sheet intensive trades where regulatory shadow costs amount up to 20%. Martins findings have implications for the design of future regulation of both bank and non- bank financial intermediaries.

In Martins second paper, he show that following the introduction of regulatory constraints on bank-affiliated dealers, bond mutual funds have started engaging in more liquidity provision and that the performance of funds with liquidity-supplying strategies has benefitted. Not only have regulations transferred profits associated with liquidity provision in the bond market to bond mutual funds, but the liquidity and returns of corporate bonds have become more exposed to redemptions from the bond mutual fund industry, suggesting that the regulations may have made the corporate bond market more volatile.

In Martins third paper, he investigate both the magnitude and the drivers of bank window dressing behavior in euro-denominated repo markets. Using a confidential transaction-level dataset, our analysis illustrates that banks engineer an economically sizeable contraction in their repo transactions around regulatory reporting dates. Martin establish a causal link between these reductions and banks’ incentives to window dress and document the role of the leverage ratio and the G-SIB framework as the most relevant drivers of window dressing behavior.

In Martins fourth paper, he uncover a robust positive relationship between a bank’s share of retained mortgages and subsequent bank performance. This relation is time-varying and depends on the business cycle: during crises, when house prices decline and delinquencies increase, high-retained-share banks report higher profitability than other banks.

ABOUT THE WORK

Anders Biörklund

Understanding valuation processes: Insights into companies and capital market dynamics

2023

Anders' dissertation is about how companies and capital market actors utilize and generate accounting and other information to comprehend and influence how companies are assessed as investment opportunities. Therefore, central areas addressed revolve around how companies are considered valuable, the factors deemed crucial by executives and financial actors in the capital market, and how they interact in different situations on the capital market. The studies contribute to increased knowledge about valuation processes and how value is created through the interaction between companies and the capital market.

The dissertation as a whole will consist of three articles in a compilation thesis, and the articles will be written on the theme described above. The projects are based on qualitative research methods to get closer to the decision-making and reasoning of the studied actors through interviews, documents, and direct observations.

ABOUT THE WORK

Anders Biörklund

2022

Forskningsprojektet undersöker motiven bakom uppdelningar/avknoppningar i kapitalmarknadskontexten. Forskningen bedrivs genom en fallstudie på ett börsnoterat bolag som genomgått en avknoppning enligt Lex Asea förfarandet och därmed skapat två börsnoterade bolag. Studien undersöker dels motiven för själva uppdelningen och hur bolagen påverkats av klyvningen och utvecklats efter dess slutförfarande.

De sökta medlen ska finansiera deltagande i kursen ”Eden Doctoral Seminar on Qualitative Research in Accounting”.

ABOUT THE WORK

Qinglin Ouyang

2022

Projektet är att utreda effekterna av riskerna med arbetslöshet i entreprenörskap genom att använda principen ”Last-in-first-out” (LIFO) – principen år 2001 genom att använda sig av data från SCB med en Difference-in-Differenser (DiD) approach. Det som utreds i projektet är hur arbetslöshetsrisk påverkar anställdas beslut att bli företagare/entreprenörer.

Det preliminära resultatet i studien visat att ökad risk för arbetslöshet leder till att andelen företagande ökar med ca 1,5 procentenheter på ett år. På tre år är motsvarande siffra 3 procentenheter. De analyser som har gjorts i studien är om effekten är starkare bland långtidsanställda. I projektet har även undersökts effekten om ens make/maka är utsatt för en ökad risk för arbetslöshet enligt LIFO-reformen. Resultatet visar att sannolikheten att ingå i ett entreprenörskap är högre om ens make/maka är utsatt för en ökad risk för arbetslöshet. I projektet har man även undersökt om manliga anställda reagerar på ökade arbetslöshetsrisker annorlunda än kvinnliga anställda. Resultaten tyder på att manliga anställda är mer benägna att bli entreprenörer än kvinnliga anställda efter att ha upplevt en högre risk för arbetslöshet efter LIFO-reformen.

De sökta medlen ska användas för att slutföra en artikel baserad på resultatet av projektet och för att delta i konferenserna American Economic Association (AEA) och för att få artikeln publicerad hos AEA. Arbete pågår också med att få artikeln publicerad hos och delta vid konferenser hos European Finance Association (EFA) och Northern Finance Association, NFA).