Matti Keloharju

How Distance, Language, and Culture Influence Stockholdings and Trades

This paper documents that investors are more likely to hold, buy, and sell the stocks of Finnish firms that are located close to the investor, that communicate in the investor’s native tongue, and that have chief executives of the same cultural background. The inf luence of distance, language, and culture is less prominent among the most investment-savvy institutions than among both households and less savvy institutions. Regression analysis indicates that the marginal effect of distance is less for firms that are more nationally known, for distances that exceed 100 kilometers, and for investors with more diversified portfolios.

The winner's curse, legal liability, and the long-run price performance of initial public offerings in Finland☆

Abstract Rationing data for initial public offerings (IPOs) in the Finnish market make possible a test of Rocks (1986) winners curse hypothesis. The evidence from 80 IPOs issued between 1984 and 1989 confirms the presence of the winners curse: average returns adjusted for the bias in allocation are lower than average unadjusted returns. But the initial returns of these IPOs appear unrelated to lawsuit avoidance, as the sample firms seem unlikely to incur legal liabilities. In the long run, consistent with the evidence in the United States, the IPO firms substantially underperform the Helsinki Stock Exchange value-weighted index.

Social Influence and Consumption: Evidence from the Automobile Purchases of Neighbors

This study analyzes the automobile purchase behavior of all residents of two Finnish provinces over several years. Using a comprehensive data set with location coordinates at the individual consumer level, it finds that the purchases of neighbors, particularly in the recent past and by those who are geographically most proximate, influence a consumers purchases of automobiles. There is little evidence that emotional biases, like envy, account for the observed social influence on consumption. Copyright by the President and Fellows of Harvard College and the Massachusetts Institute of Technology.

Why Do Firms Raise Foreign Currency Denominated Debt? Evidence from Finland

This study examines the determinants of the decision to raise currency debt. The results suggest that hedging figures importantly in the currency–of–denomination decision: firms in which exports constitute a significant fraction of net sales are more likely to raise currency debt. However, firms also tend to borrow in periods when the nominal interest rate for the loan currency, relative to other currencies, is lower than usual. This is consistent with the currency debt issue decision being affected by speculative motives. Large firms, with a wider access to the international capital markets, are more likely to borrow in foreign currencies than small firms.

Earnings cosmetics in a tax-driven accounting environment: evidence from Finnish public firms

Finnish firms are known to manage earnings downwards to avoid income taxes. This study suggests that they simultaneously manage earnings upwards in a smaller scale. The idea behind this behaviour is that humans may perceive a profit of, say, 301 million as abnormally larger than a profit of 298 million. Consequently, firms tend to adjust the second leftmost digit of earnings to exceed nine in order to make the first digit of earnings larger by one. Such corporate behaviour has been previously documented in New Zealand and in the USA. Our study finds a similar phenomenon in Finland. Our results show that although the largest second digits (eight and nine) are fewer than expected, only sixes and sevens are statistically significantly managed upwards.

Do Retail Incentives Work in Privatizations

20 countries around the world have used incentive packages, including bonus shares and discounts, to attract retail investors to participate in privatizations. Using a unique dataset, we estimate the total cost of incentive packages at approximately

IQ and Mutual Fund Choice

27 billion. The expiration of bonus share plans is associated with a six-day abnormal return of -1.1% and a long-term increase in volume. Incentives have been surprisingly effective in meeting stated privatization objectives. A dollar spent on retail incentives helps to attract about 21 times as many investors as a dollar spent on underpricing. Individual-level analysis shows that flipping is not only much reduced in the short term, but also declines by at least 15% over a period of 1,000 trading days.

Market-to-book Ratios, Equity Retention and Management Ownership in Finnish Initial Public Offerings

Using a comprehensive dataset of Finnish males, we study IQ’s influence on mutual fund choice. High-IQ investors are less likely to own balanced funds, actively managed funds, and funds marketed through a retail network. This behavior tends to reduce high-IQ investors’ fund fees. Moreover, within each asset class and service category, and controlling for other investor attributes, high-IQ investors prefer the lowest-fee funds, further reducing the fees incurred. IQ’s effect on fee sensitivity is robust to the addition of fund family dummies, which help control for unobservable service attributes. IQ also influences the fee sensitivity of even the most affluent investors, ruling out wealth-related access to low-fee funds as the explanation for IQ’s relationship to fees.

The Distribution of Information Among Institutional and Retail Investors in IPOs

Abstract Using a sample of Finnish initial public offerings, we find that the fraction of equity retained by the original shareholders is significantly positively related to the market-to-brook ratio. The result is consistent with the Leland and Pyle (1977) hypothesis suggesting that the original shareholders can signal the quality of their firm by their willingness to retain equity. Moreover, we find that management ownerships association with relative firm value is significantly positive at low ownership levels but insignificant at high ownership levels. This gives some support for the agency hypothesis which suggests that corporate value is a function of managerial equity ownership.

The ex-dividend day behaviour of Finnish restricted and unrestricted shares

This study examines investor performance in IPOs using a unique database comprising 85,384 investors and 29 offerings from Finland. The evidence indicates that on average institutional investors do not obtain larger initial returns than retail investors, as the incentive to acquire information is limited by allocation rules which favour small orders. This result is in contrast to findings by Aggarwal et al. (2002), who show that institutional investors perform better in a bookbuilding environment. Within each investor category, however, large orders are associated with the best performance, suggesting that information differences figure more importantly within rather than between categories.