Insider Trading and Firm Performance Following Open Market Share Repurchase Announcements. (January 2014)

• Record Type: Journal Article
• Authors: Chen, Hsuan‐Chi; Chen, Sheng‐Syan; Huang, Chia‐Wei; Schatzberg, John D.
• Is Part Of: Journal of business finance & accounting. Volume 41:Number 1/2(2014)
• Page Start: 156
• Page End: 184
• Publication Date: 2014-01
• Subjects: Finance -- Periodicals; Accounting -- Periodicals; Business -- Periodicals; 658.15
• DOI: 10.1111/jbfa.12059
• Languages: English
• ISSNs: 0306-686X

Abstract

<abstract abstract-type="main"> <title>Abstract</title> <p>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.</p> </abstract>