Insider Trading and Firm Performance Following Open Market Share Repurchase Announcements
Journal
Journal of Business Finance and Accounting
Journal Volume
41
Journal Issue
1-2
Pages
156-184
Date Issued
2014-01-01
Author(s)
Abstract
The long-run performance of equity securities subsequent to announcements of open market repurchases (OMR) remains a contentious topic. In this paper we propose the "dichotomous expectations hypothesis" which posits that insider trading following share repurchase announcements reveals private information concerning the future operating performance of announcing firms. In particular, insider abnormal purchases (abnormal sales) should predict an improvement (decline) in operating performance that leads to higher (lower) long-run stock returns. Our hypothesis offers a credible economic link between insider trading and subsequent long-run stock performance through the intervening variable of operating performance. The empirical results show consistency with this linkage. © 2014 John Wiley & Sons Ltd.
Subjects
Insider trading | Long-run performance | Open market repurchases (OMR)
SDGs
Publisher
WILEY
Type
journal article