Tying initial public offering (IPO) allocations to after-listing purchases of other IPO shares as a form of price support has generated much theoretical interest and media attention. Price support is price manipulation and can reduce secondary investor return. In the past, obtaining data to investigate price support has proven to be difficult. I document that price support is harming secondary investor return using new data from the Oslo Stock Exchange. I also show that investors who engage in price support are allocated more future oversubscribed allocations, whereas harmed secondary investors significantly reduce their future participation in the secondary market.

Journal of Financial Economics
With Neal Galpin and Lyndon Moore

We examine listing applications by firms to the London Stock Exchange between 1891 and 1911. The exchange rejected 82 (13.1%) of the 628 applicants to its main board. Accepted applicants were twice as likely to pay dividends (and to pay twice as much) and had longer firm lives than rejected applicants. Rejected applicants were more likely to file for liquidation than successful applicants. These results remain even after we control for the primary benefits of the listing itself: liquidity and future capital inflows. In this era, the London Stock Exchange could screen applicants for listing.

Financial Management

Using security holdings of 49,857 foreign investors on the Oslo Stock Exchange (OSE), I test whether concentrated investment strategies in international markets result in excess risk-adjusted returns. I find that investors with higher learning capacity increase returns, while investors with lower learning capacity decrease returns from the portfolio concentration. I measure learning capacity as institutional classification, geographical proximity to Norway, and cultural closeness to Norwegian investors (as based on the Hofstede cultural closeness measures). I conclude, consistent with the information advantage theory, that concentrated investment strategies in foreign markets can be optimal (disastrous) for investors with higher (lower) learning capacity.

Finance Research Letters

It is well documented in the finance literature that retail investors (households) underperform on a risk-adjusted basis when trading in securities markets. More recently, however, there is growing evidence that some retail investors increase risk-adjusted returns from security selection (portfolio concentration). I show that these mixed findings are driven by investor trading experience. Using unique portfolio holdings data of all the 620,970 domestic retail investors on the Oslo Stock Exchange (OSE) from 1993 to 2006, I document that inexperienced investors reduce returns from portfolio concentration. However, as investors gain trading experience their ability to turn portfolio concentration into excess returns improves.

Business History
With Neal Galpin and Lyndon Moore

Company directors in Victorian Britain have a somewhat dubious reputation. There are claims that directors had little business experience with the directorships obtained mainly via social connections. However, a little experience goes a long way, and boards with experienced directors can place their securities in an initial public offering (IPO) at better prices and can obtain more dispersed ownership than inexperienced boards. We find evidence of network effects – directors attracted investors from firms they had previously floated. These beneficial effects of experience are appreciated by the market experienced directors are more likely to obtain future positions on IPO boards.

The European Journal of Finance

Regulators, investors, and the financial media argue that underwriters tie Initial Public Offering (IPO) allocations to investor post-listing purchases in the issuer shares. Using unique data from the Oslo Stock Exchange (OSE) I investigate if these tie-in agreements are driven by price stabilization (reducing price falls below the offer price) or laddering (inflating prices above the offer price). I find that both stabilizing and laddering investors are rewarded with increased allocations for their service. However, only laddering investors increase allocations in very oversubscribed future issues. Secondary investors also lose from falling returns following laddering. I conclude that underwriters use both price stabilization and laddering across different IPOs. However, the rewards for cooperating investors and the economic consequences for secondary investors are much greater following laddering.

European Financial Management

Practitioners, regulators, and the financial media argue that underwriters tie initial public offering (IPO) allocations to investor post-listing buying of the issuer shares in a process labelled price support. Arguably, this excess demand boosts post-listing returns which underwriters trade quid pro quo with investor stock-trading commission payments. In this paper, I investigate unique data from the Oslo Stock Exchange (OSE) including investor stock-trading commissions, IPO allocations, and post-listing trading. I document that investors who provide high returns to underwriters before IPOs benefit from price support through increased returns in IPOs. I conclude that price support is used when investors share boosted returns with underwriters.

Applied Economics Letters

It is well documented in the finance literature how share prices go up when companies increase dividend payouts. The long-term trend, however, is that more companies now retain excess cash rather than paying dividends. In this paper, I investigate if companies retain cash to invest on private information in domestic stock markets. I look at 20,620 domestic non-financial companies trading shares on the Oslo Stock Exchange (OSE) over the period 1993 to 2006. I find that companies earn excess risk-adjusted-returns from active trading. I conclude that companies retain at least some cash to take advantage of private information.

The Economic History Review
With Neal Galpin and Lyndon Moore

There have been claims that British capital was not well deployed in Victorian Britain. There was, allegedly, a lack of support for new and dynamic companies in comparison to the situation in Germany and the US.We find no evidence to support these claims. The London Stock Exchange welcomed young, old, domestic, and foreign firms. It provided funds to firms in old, existing industries as well as patenting firms in ‘new-tech’ industries at similar costs of capital. If investors did show a preference for older and foreign firms, it was because those firms offered investors better long-run performance. In addition, we show some evidence that investors who worked in the same industry and lived close to the firm going public were allotted more shares in high-quality initial public offerings.