Insider Trading and Firm Performance Following Open Market Share Repurchase Announcements

Chen, Hsuan‐Chi; Chen, Sheng‐Syan; Huang, Chia‐Wei; Schatzberg, John D.

doi:10.1111/jbfa.12059

Cited by 15 publications

(11 citation statements)

References 48 publications

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“…Rosenthal and Sinha (2011) suggest that share buybacks announced in the post-1990s era do not necessarily lead to shareholder wealth maximization. Moreover, the credibility of their undervaluation signaling depends on whether repurchases are timed, for example, around executives' trades (Andriosopoulos and Hoque, 2014;Babenko et al, 2012;Bonaimé and Ryngaert, 2013;Chen et al, 2014). While we do not have data on insider trading around share repurchases announcements, we did find that the announcement date excess returns vary across time.…”

Section: Introductioncontrasting

confidence: 57%

The market valuation of share repurchases in Europe

Andriosopoulos

Lasfer

2015

Journal of Banking & Finance

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We analyze a uniquely constructed data set of open market share repurchases across a sample of European firms. We find that the announcement date market reaction is lower than that in the US, mainly because of (i) the relatively large number of recurring announcements which generate significantly lower returns than the initial announcements of intention to repurchase shares; (ii) the rather low market reaction in France, due probably to specific governance and corporate cultural issues; and (iii) the regulatory reform that allowed UK firms to keep the repurchased shares as treasury stock, which decreased their market impact. Across our countries, taxation, shareholder protection, and the European Union's Market Abuse Directive do not affect significantly the market valuation of repurchases. Ultimately, domestic institutional specificities and reforms play significant roles in the market valuation and popularity of share repurchases

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Section: Introductioncontrasting

confidence: 57%

The market valuation of share repurchases in Europe

Andriosopoulos

Lasfer

2015

Journal of Banking & Finance

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“…Some studies support that OMR firms' insiders (like firm managers) possess private information that significantly correlates to the announcement period and post-announcement abnormal returns or long-run abnormal returns (Babenko, Tserlukevich, & Vedrashko, 2012;Fei Leng, 2013;Jategaonkar, 2013;Chen, Chen, Huang, & Schatzberg, 2014;Leng & Zhao, 2014). But some studies have different views, Bonaimé and Ryngaert (2013) considered that repurchase firms' insider trading activity is not always consistent with undervaluation.…”

Section: Literature Reviewmentioning

confidence: 99%

Effects of the Pre-Repurchase Systematic Risk on the Relationship Between Investor Behavior, Market Factors and the Stock Price Responses

Liu

2018

Journal of Business Economics and Management

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This study explores the pre-repurchase systematic risk will affect the abnormal returns in the open-market repurchase event period and also change the relationship between the investor sentiment, trading activity, market factors and stock price response during the event on Taiwan stock market. Based on threshold regression models, it is found that the pre-repurchase systematic risk will significantly change the relationship between investor behavior, market factors and stock price responses and the asymmetry of the relationship exists when pre-repurchase systematic risk is lower than a repartition, which supports that institutional investors and credit trading investors differ in these existing relationships. When the pre-repurchase beta is below repartition, it will be detrimental to the returns in event period. But on the contrary, the returns in the short-term shock of news exposure period present the favorable results, which may be related to the fact that there exists sentiment premium in short-term when credit trading investors’ repurchase news exposure occurs. Finally, the study is to confirm the effect of systematic risk for returns and investor sentiment, these results have not been further explored in the past, and can be used as the firm’s evalu-ation reference to the repurchase program in the future.

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“…It is thus not surprising that prior research on insider sales has produced mixed results. Most studies fail to find future negative returns associated with insider sales (for some exceptions, see Akbas, Jiang, & Koch, 2020; Chen, Chen, Huang, & Schatzberg, 2014; Cohen, Malloy, & Pomorski, 2012; Kelly, 2018; Scott & Xu, 2004). The difficulty of documenting the informativeness of insider sales is usually attributed to the fact that many sales are for liquidity reasons and it is difficult to ex ante distinguish liquidity‐motivated from information‐based sales.…”

Section: Introductionmentioning

confidence: 99%

Asymmetric information consolidation and price discovery: Inferring bad news from insider sales

Karamanou

Pownall

Prakash

2020

Business Fin & Account

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Due to the paucity of sources of negative firm‐specific information, US capital markets have more difficulty identifying and incorporating bad news into stock prices than they do good news. Even though insider selling is a potentially important proxy for undisclosed bad news, researchers have difficulty ex ante identifying information‐based sales due to an inability to separate liquidity‐motivated from information‐based insider trades. We hypothesize that when insiders in multiple firms sell shares of one firm in which they are insiders and at the same time buy shares of other insider portfolio firms, the sale is more likely to be information‐based, since the proceeds are reinvested. Conversely, when an insider sells one firm without purchasing others or sells multiple insider firms the sale is likely liquidity‐motivated. We find that insider sales identified as information‐based using this algorithm are followed by significant negative abnormal returns. Information‐based sales are also more likely to be associated with delistings, earnings declines and earnings restatements. Analysts are also more likely to revise their earnings forecasts downwards for these firms. It is thus possible to ex ante identify insider sales with information content. Our results will be of interest to investors and also to regulators designing insider trading rules.

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Insider Trading and Firm Performance Following Open Market Share Repurchase Announcements

Cited by 15 publications

References 48 publications

The market valuation of share repurchases in Europe

The market valuation of share repurchases in Europe

Effects of the Pre-Repurchase Systematic Risk on the Relationship Between Investor Behavior, Market Factors and the Stock Price Responses

Asymmetric information consolidation and price discovery: Inferring bad news from insider sales

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