Stock Performance and Insider Trading in Completed and Canceled Private Placements

Abstract

This paper examines the impact of insider trading on completed and canceled private equity offerings. We find that insider trading has no impact on firms’ decisions to complete or cancel offerings, but it has a positive impact on the long‐run stock performance of the issuing firms. Firms complete the undervalued offerings and cancel the offerings when they no longer perceive their shares are undervalued. Firms with weaker operating performance are more likely to complete private placements because they regard private offering as the last resort for raising equity capital. Firms that complete private placements have significantly better long‐term stock performance than firms that cancel private placements.