Insider Trading, News Releases, and Ownership Concentration

Abstract

This paper investigates the market's reaction to UK insider transactions and analyzes whether the reaction depends on the firm's ownership. There are three major findings. First, differences in regulation between the UK and US, in particular the speedier reporting of trades in the UK, may explain the observed larger abnormal returns in the UK. Second, ownership by directors and outside shareholders has an impact on the abnormal returns. Third, it is important to adjust for news released before directors' trades. In particular, trades preceded by news on mergers & acquisitions and CEO replacements contain significantly less information.JEL codes: G14, G39

Insider Trading and the Classification of Seasoned Equity Offerings: Evidence from Taiwan

“…9, No. 5;2017 Goergen, andRenneboog (2006), trades of directors contain more information than those of large shareholders. Moreover, the director sale may convey unfavorable information about the firm's prospects whereas director buy may convey positive information.…”

“…Specifically, insiders can communicate the superior information to outsiders around SEO event. Fidrmuc, Goergen and Renneboog (2006) argue that the director's purchases and sales in U.S. and U.K. can trigger significant immediate market reactions on announcement day. Shiue, Lin and Liu (2009) suggest that if the board of directors is independent and competent, they can efficiently decrease the magnitude of overvalued equity before firms issue SEO, which can exhibit the positive stock price reaction to SEO announcement.…”