Do Insiders Use Investor Relations for Their Personal Benefit? An Empirical Investigation of Hong and Huang (2005)
57 Pages Posted: 27 Dec 2011
Date Written: December 24, 2011
Investor relations (IR) are costly activities, and a widely held view is that companies undertake them to increase share price over time. However, Hong and Huang (2005) assert that companies undertake IR for the personal benefit of company insiders with large ownership stakes. We test Hong and Hong (2005) empirically, specifically by investigating the association between the IR activities of newly listed companies and insider equity ownership, as well as insider sales. The results support Hong and Huang’s predictions where newly listed companies are more likely to engage in broker presentations when insiders have a valuable ownership stake. Furthermore, companies where insiders sell a large portion of their shares undertake different group presentations. The results suggest that insiders in these companies contemplate their personal incentives when setting IR policy such that IR is not necessarily undertaken for the benefit of all shareholders.
Keywords: investor relations, insiders, insider sales, equity ownership
JEL Classification: G32
Suggested Citation: Suggested Citation