Institutional investment in repurchase stocks: insider trading information. Issue 10 (23rd June 2020)

• Record Type: Journal Article
• Authors: Wang, Jin-Ying
• Is Part Of: Managerial finance. Volume 46:Issue 10(2020)
• Page Start: 1305
• Page End: 1319
• Publication Date: 2020-06-23
• Subjects: Institutional investors -- Share repurchase -- Insider trading information; Corporations -- Finance -- Periodicals; Business enterprises -- Finance -- Periodicals; 658.1505
• DOI: 10.1108/MF-10-2019-0531
• Languages: English
• ISSNs: 0307-4358

Abstract

Abstract : Purpose: This study explores whether institutional investors can distinguish an undervalued share repurchase from a falsely signaled share repurchase. This study also aims to determine what information institutions use when investing in repurchase stocks. Design/methodology/approach: This study uses unique Taiwanese data and concentrates on foreign institutions because they are the most sophisticated investors in Taiwan. Findings: The results show that foreign institutional trading in open market repurchase (OMR) stocks will earn both positive concurrent and post-OMR excess returns. In addition, there is a significant positive relationship between pre-OMR insider trading and foreign institutional trading during the OMR period; that is, foreign institutions follow insiders to trade their OMR stocks. Practical implications: This study finds that foreign institutions use publicly available data on insider trading to choose OMR stocks and create excess returns. This encourages individual investors without private information, who can also earn a positive return if they diligently study available public information. Originality/value: This study contributes to the international investment literature by determining the price impacts associated with foreigner trading in the firm-level returns of the host country. In addition, this study finds that foreign institutions choose OMRs based on insider trading information, which fills the gap in existing studies on share repurchasing. Moreover, this study enriches the insider literature by showing how foreign institutions can benefit by using insider trading information.