Do Insiders Use Investor Relations for Their Personal Benefit? An Empirical Investigation of Hong and Huang (2005)

57 Pages Posted: 27 Dec 2011

See all articles by Millicent Chang

Millicent Chang

The University of Western Australia; University of Wollongong

Ben Milton

affiliation not provided to SSRN

Marvin Wee

Australian National University (ANU); Financial Research Network (FIRN)

Date Written: December 24, 2011

Abstract

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

Chang, Millicent and Milton, Ben and Wee, Marvin, Do Insiders Use Investor Relations for Their Personal Benefit? An Empirical Investigation of Hong and Huang (2005) (December 24, 2011). Available at SSRN: https://ssrn.com/abstract=1976897 or http://dx.doi.org/10.2139/ssrn.1976897

Millicent Chang (Contact Author)

The University of Western Australia ( email )

35 Stirling Highway
Crawley, Western Australia 6009
AUSTRALIA

University of Wollongong ( email )

Northfields Avenue
Wollongong, New South Wales 2522
Australia

Ben Milton

affiliation not provided to SSRN ( email )

Marvin Wee

Australian National University (ANU) ( email )

The Australian National University
College of Business and Economics
Canberra, 2601
Australia
+61 2 61250416 (Phone)

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

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