Insider Trading and Financing Constraints. Issue 4 (November 2014)

• Record Type: Journal Article
• Authors: Ataullah, Ali; Goergen, Marc; Le, Hang
• Is Part Of: Financial review. Volume 49:Issue 4(2014)
• Page Start: 685
• Page End: 712
• Publication Date: 2014-11
• Subjects: Finance -- United States -- Periodicals; Finance -- Periodicals; 332
• DOI: 10.1111/fire.12053
• Languages: English
• ISSNs: 0732-8516

Abstract

<abstract abstract-type="main"> <title>Abstract</title> <p>Insider trading may alleviate financing constraints by conveying value‐relevant information to the market (the information effect) or may exacerbate financing constraints by impairing market liquidity and distorting insiders' incentives to disclose value‐relevant information (the confidence effect). We examine the significance of these two contrasting effects by investigating the link between insider trading and financing constraints as measured by the investment‐cash flow sensitivity. We find that, overall insider trading exacerbates financing constraints; however the information effect dominates the confidence effect for insider purchases. Only trades by executive directors are significantly related to financing constraints.</p> </abstract>