Corporate Bankruptcy and Insider Trading

Seyhun, H. Nejat; Bradley, Michael

doi:10.1086/209715

Cited by 204 publications

(124 citation statements)

References 27 publications

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“…These findings are driven primarily by insiders' share purchases, given that average share sales are more likely driven by managers' portfolio diversification needs (Carpenter and Remmers 2001;Jeng et al 2003). However, when focusing on more specific settings, prior research indicates that share sales are informative for future firm performance around seasoned equity offerings (Karpoff and Lee 1991), bankruptcy petition filings (Seyhun and Bradley 1997), CEO home purchases (Liu and Yermack 2007), and in situations where trades are allowed to be reported with a delay (Cheng et al 2007) or are formally preannounced (Jagolinzer 2009). …”

Section: Ineffective Internal Control and Insider Tradingmentioning

confidence: 99%

Internal Control Over Financial Reporting and Managerial Rent Extraction: Evidence from the Profitability of Insider Trading

2012

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This paper examines the association between ineffective internal control over financial reporting and the profitability of insider trading. We predict and find that the profitability of insider trading is significantly greater in firms disclosing material weaknesses in internal control relative to firms with effective control. The positive association is present in the years leading up to the disclosure of material weaknesses, but disappears after remediation of the internal control problems. We find insider trading profitability is even greater when insiders are more likely to act in their own self-interest as indicated by auditors' weak "tone at the top" adverse internal control opinions and this incremental profitability is driven by insider selling. Our research identifies aWe appreciate the helpful comments from the editor Michelle Hanlon, an anonymous reviewer, Steve Lin, Stefan Veith, participants at the 2010 AAA Annual Meeting and 2011 EAA Congress, and workshop participants at Erasmus University Rotterdam.2 new setting where shareholders are most at risk for wealth transfers via insider trading and highlights market consequences of weak "tone at the top".

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Section: Ineffective Internal Control and Insider Tradingmentioning

confidence: 99%

Internal Control Over Financial Reporting and Managerial Rent Extraction: Evidence from the Profitability of Insider Trading

2012

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“…This is because trading on (and profiting from) mispricing is likely less costly for managers compared to trading on a specific private information advantage due to the lower risk of litigation. 6 Accordingly, I formulate the following "mispricing hypothesis", stated in alternative form: (Cheng and Lo 2006), annual/interim report filings , restatements (Badertscher et al 2011), bankruptcies (Seyhun and Bradley 1997) or mergers and acquisitions (Seyhun 1990). My study focuses on average insider trading behavior.…”

Section: Hypothesesmentioning

confidence: 99%

Do Managers Trade on Public or Private Information? Evidence from Fundamental Valuations

Veenman

2012

SSRN Journal

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Using accounting-based (residual income) valuations, this study examines the extent to which abnormal returns after insider share trades are explained by private information versus mispricing of public information. For a sample of insider trades in the Netherlands (1999)(2000)(2001)(2002)(2003)(2004)(2005)(2006)(2007)(2008), I find that managers' share purchase decisions are associated with positive future abnormal returns as well as equity undervaluation. Even though undervaluation results in predictable price increases, positive abnormal returns following purchases persist after controlling for fundamental valuations. Thus, this study provides evidence on the sources of managers' personal trading gains and suggests that positive abnormal returns after insider share purchases reflect both private information and managers' responses to market mispricing of public information. Keywords: insider trading; mispricing; residual income valuation; private informationThis study is partly based on my dissertation completed at the University of Amsterdam. I appreciate the helpful comments and suggestions from an anonymous reviewer, Joost Impink, and Laurence van Lent (editor). I also thank seminar participants at the University of Amsterdam, the European Accounting Association annual meeting, and the Monash University PhD Accounting and Finance Symposium in Prato for helpful comments on earlier drafts.

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“…Tavakoli et al (2012), Cohen et al (2010), Gosnell et al (1992) and Seyhun et al (1997) fi nd that the trades of directors or other managers have predictive power and that e.g. independent directors make positive abnormal returns before their trades, especially in fi rms with weak corporate governance standards.…”

Section: Introductionmentioning

confidence: 99%

Insider Trading Activities and Returns of German Blue Chips

Linnertová¹,

Deev²

2016

Acta Univ. Agric. Silvic. Mendelianae Brun.

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Thus, stock returns may be used to predict future insider trading activity. The strong causality between stock returns and future insider buying and selling transactions is further confi rmed with three out of four employed insider trading indices. The fact of the legal insider trade (either buy or sell) is more important than its volume. The reverse relationship is weak and valid only for longer time horizon of twelve months. Our results indicate that insider traders do not degrade the market effi ciency in the long run.

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Corporate Bankruptcy and Insider Trading

Cited by 204 publications

References 27 publications

Internal Control Over Financial Reporting and Managerial Rent Extraction: Evidence from the Profitability of Insider Trading

Internal Control Over Financial Reporting and Managerial Rent Extraction: Evidence from the Profitability of Insider Trading

Do Managers Trade on Public or Private Information? Evidence from Fundamental Valuations

Insider Trading Activities and Returns of German Blue Chips

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