Market Liquidity and Block Holdings - Empirical evidence from the Swedish market

Abstract: Purpose: Investigate the relation between block ownership and stock liquidity. Methodology: The empirical methods used in this project are of quantitative nature. We use a set of dependent variables representing liquidity measures in order to test how our main explanatory variable, sum of block holdings, affect this. Furthermore, control variables such as market capitalization, share price and volatility are included in the models in order to isolate the effects of our explanatory variables on our dependent variables. Theoretical perspectives: The active monitoring hypothesis, agency problems, information asymmetry, trading friction, trade-off theory, ownership identity, secondary market liquidity. Empirical foundation: The sample consists of publicly traded Swedish companies listed on Nasdaq OMX Small, Mid and Large cap as well as the First North growth market. Data is gathered through Datastream and Modular Finance’s Holdings. The final sample is an unbalanced panel data set, consisting of 7239 observations from 676 companies. Conclusions: Our findings confirm that also on the Swedish market, blockholders have an adverse effect on liquidity. Blockholders are proven to affect liquidity by both altering trading activity and by increasing information asymmetry, which seems to indicate that the underlying characteristics of a market affect the mechanisms of how blockholdings impact liquidity. These findings are valid irrespective of whether we test the sum of ownership blocks as shareholders owning more than 2.5, 5 or 10% of outstanding shares, regardless of blockholders being classified as owners of cash flow rights or voting rights and whether we perform the regressions cross-sectionally on firm averages rather than with panel data.