Directors' Purchases 'Talk' and Share Repurchases 'Whisper'?

Abstract

With daily trades of directors’ purchases and share repurchase we find that the former is preceded by larger share price drops and trigger a better short- and long-term market performance. Further, when directors purchase shares with their own wealth they time the market by buying shares at a discount of 1.9% and 6.7% over the two and twelve months, respectively, surrounding these trades. In contrast, directors repurchase shares at a premium of 0.5% which reverts to zero over the two and twelve months, respectively, surrounding these trades, corroborating the price support hypothesis. Even when both trades occur within two days directors still purchase shares at a larger discount of 3% over the twelve months surrounding these trades. Finally, directors’ long-term incentive plans (accumulated shares) increase the likelihood of share repurchasing (directors’ purchasing) but are inversely related to the market valuation of these trades.

Keywords: Share repurchases, directors’ purchases, price support, market timing, directors' wealth, LTIPs, financial constraints

JEL Classification: G1, G14, G3, G35