Insider Trading and Firm Performance Following Open Market Share Repurchase Announcements

29 Pages Posted: 25 Feb 2014

See all articles by Hsuan‐Chi Chen

Hsuan‐Chi Chen

University of New Mexico - Anderson School of Management

Sheng‐Syan Chen

National Taiwan University - Department of Finance

Chia‐Wei Huang

Yuan Ze University

John Schatzberg

University of New Mexico - Robert O. Anderson Schools of Management

Multiple version iconThere are 2 versions of this paper

Date Written: January/February 2014

Abstract

The long‐run performance of equity securities subsequent to announcements of open market repurchases (OMR) remains a contentious topic. In this paper we propose the “dichotomous expectations hypothesis” which posits that insider trading following share repurchase announcements reveals private information concerning the future operating performance of announcing firms. In particular, insider abnormal purchases (abnormal sales) should predict an improvement (decline) in operating performance that leads to higher (lower) long‐run stock returns. Our hypothesis offers a credible economic link between insider trading and subsequent long‐run stock performance through the intervening variable of operating performance. The empirical results show consistency with this linkage.

Keywords: open market repurchases (OMR), insider trading, long‐run performance

Suggested Citation

Chen, Hsuan-Chi and Chen, Sheng-Syan and Huang, Chia-Wei and Schatzberg, John, Insider Trading and Firm Performance Following Open Market Share Repurchase Announcements (January/February 2014). Journal of Business Finance & Accounting, Vol. 41, Issue 1-2, pp. 156-184, 2014, Available at SSRN: https://ssrn.com/abstract=2400804 or http://dx.doi.org/10.1111/jbfa.12059

Hsuan-Chi Chen (Contact Author)

University of New Mexico - Anderson School of Management ( email )

1924 Las Lomas NE
Albuquerque, NM 87131
United States

HOME PAGE: http://www.mgt.unm.edu/faculty/directoryArea.asp#FIN

Sheng-Syan Chen

National Taiwan University - Department of Finance ( email )

College of Management
50 Lane 144, Section 4
Taipei 32026, Taiwan
China
+886 2 3366 1083 (Phone)

Chia-Wei Huang

Yuan Ze University ( email )

135, Far-East Rd., Chung-Li
Taoyuan, ROC
Taiwan

John Schatzberg

University of New Mexico - Robert O. Anderson Schools of Management ( email )

Albuquerque, NM 87131
United States

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