Double Signals or Single Signal? An Investigation of Insider Trading around Share Repurchases

HKIMR Working Paper No.22/2008

28 Pages Posted: 21 Feb 2009

See all articles by Michael Firth

Michael Firth

Lingnan University - Department of Finance and Insurance

Tak Yan Leung

City University of Hong Kong (CityUHK) - Department of Accountancy

Oliver M. Rui

China Europe International Business School (CEIBS)

Date Written: November 30, 2008

Abstract

This study examines directors' dealing activity around share repurchasing periods in Hong Kong. There are significant insider trading activities before the share repurchasing period. Consistent with the signaling hypothesis, the directors' purchase activities during the share repurchase period are significantly higher than the expected level while the directors' sale activities are abnormally lower than the expected level. Double signals of share repurchases and directors' purchases create a stronger signal in conveying undervaluation. However, insider sales around share repurchase discounts the undervaluation signal. This study provides some evidence that information signaling is a dominating factor driving the share repurchase decision.

Suggested Citation

Firth, Michael and Leung, Tak Yan and Rui, Oliver M., Double Signals or Single Signal? An Investigation of Insider Trading around Share Repurchases (November 30, 2008). HKIMR Working Paper No.22/2008, Available at SSRN: https://ssrn.com/abstract=1322365 or http://dx.doi.org/10.2139/ssrn.1322365

Michael Firth

Lingnan University - Department of Finance and Insurance ( email )

Castle Peak Road
Tuen Mun, New Territories
Hong Kong
China
+852 2616 8160 (Phone)
+852 2466 4751 (Fax)

Tak Yan Leung

City University of Hong Kong (CityUHK) - Department of Accountancy ( email )

83 Tat Chee Avenue
Kowloon
Hong Kong
China

Oliver M. Rui (Contact Author)

China Europe International Business School (CEIBS) ( email )

699 Hong Feng Road
Pudong
Shanghai 201206
China
86-21-28905618 (Phone)
86-21-28905620 (Fax)

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