Insider Trading and Financing Constraints

44 Pages Posted: 16 Jun 2013 Last revised: 30 Apr 2014

See all articles by Ali Ataullah

Ali Ataullah

Loughborough University - Business School

Marc Goergen

IE Business School, IE University; European Corporate Governance Institute (ECGI)

Hang Le

University of Sheffield Management School

Multiple version iconThere are 2 versions of this paper

Date Written: April 2014


Insider trading may alleviate financing constraints by conveying value relevant information to the market (the information effect) or may exacerbate financing constraints by impairing market liquidity and distorting insiders’ incentives to disclose value-relevant information (the confidence effect). We examine the significance of these two contrasting effects by investigating the link between insider trading and financing constraints as measured by the investment-cash flow sensitivity. We find that, overall insider trading exacerbates financing constraints; however the information effect dominates the confidence effect for insider purchases. Only trades by executive directors are significantly related to financing constraints.

Keywords: Insider trading; investment-cash flow sensitivity; financing constraints; information hierarchy hypothesismation hierarchy hypothesis

JEL Classification: G1, G3

Suggested Citation

Ataullah, Ali and Goergen, Marc and Le, Hang, Insider Trading and Financing Constraints (April 2014). European Corporate Governance Institute (ECGI) - Finance Working Paper No. 363/2013, Available at SSRN: or

Ali Ataullah

Loughborough University - Business School ( email )

Ashby Road
Nottingham NG1 4BU, LE11 3TU
Great Britain

Marc Goergen (Contact Author)

IE Business School, IE University ( email )

Finance Department
Maria de Molina, 12
Madrid, 28006


European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels


Hang Le

University of Sheffield Management School ( email )

United Kingdom

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