Ownership Structure and Insider Trading: Evidence from China

63 Pages Posted: 7 Oct 2014 Last revised: 8 May 2016

See all articles by Qing He

Qing He

Renmin University of China

Oliver M. Rui

China Europe International Business School (CEIBS)

Date Written: October 7, 2014

Abstract

In this paper, we examine the information content of insider transactions in China and analyze how ownership structures shape market reaction to these transactions. We find that the cumulative abnormal return (CAR) to insider purchases is a convex function of the percentage of shares owned by the largest shareholder. Further, the CAR to insider purchases is lower when the largest shareholder is government-related, or when the control rights of the largest shareholder exceed its cash flow rights. We also find that the market reaction to insider purchases is more positive for firms audited by Big 4 auditors. However, we do not find a significant relationship between an ownership structure and the market reaction to insider sales. Our results are remarkably robust to alternative model specifications, corporate insider identities and recent corporate news releases on price-sensitive events. Finally, we show that market reaction to insider purchases is larger for firms with less severe expropriations, as captured by the use of other receivables.

Keywords: Insider trading; ownership structure; audit quality; China

JEL Classification: G34

Suggested Citation

He, Qing and Rui, Oliver M., Ownership Structure and Insider Trading: Evidence from China (October 7, 2014). Journal of Business Ethics, Vol. 134, No. 4, 2016, Available at SSRN: https://ssrn.com/abstract=2506449 or http://dx.doi.org/10.2139/ssrn.2506449

Qing He

Renmin University of China ( email )

Room 705
Mingde main building
Beijing, Beijing 100872
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)

HOME PAGE: http://https://www.ceibs.edu/rui-oliver

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