Are Directors’ Dealings Informative? Evidence from European Stock Markets

Abstract

In this paper, we investigate whether directors' dealings reports are informative for outside investors. We analyze short-term announcement effects for eight European countries, namely Austria, France, Germany, Ireland, Italy, the Netherlands, Sweden, and the U.K, between 01/2003 and 12/2009. We find significant announcement effects in four out of eight countries after directors' dealings reports have been disclosed. Moreover, we conclude that for most countries the magnitude of the announcement effect depends on transaction size, firm size, book to market ratio, and multiple trades by different insiders on the same trading day. The results are stronger for purchases than for sales. For France, Ireland and Sweden we find tentative evidence that the corporate position of an insider is connected to the size of the announcement effect. In some countries, we observe stronger announcement effects after the implementation of the E.U. Market Abuse Directive 2003/6/EC. Moreover, we find that abnormal returns after directors' dealings announcements are most pronounced in the healthcare and energy sectors.

Keywords: Directors’ dealings, Europe, insider hierarchy, R&D intensity

JEL Classification: G14, G15