Directors’ Share Dealings and Corporate Insolvencies: Evidence from the UK

Ozkan, A., Poletti-Hughes, J. & Trzeciakiewicz, A. (2017), ‘Directors’ share dealings and corporate insolvencies: evidence from the UK’, The European Journal of Finance 23(5), 427–455.

Posted: 20 Jul 2017

See all articles by Aydin Ozkan

Aydin Ozkan

Hull University Business School (HUBS)

Jannine Poletti Hughes

University of Liverpool - Management School (ULMS)

Agnieszka Trzeciakiewicz

University of Hull - Hull University Business School (HUBS)

Date Written: July 11, 2014

Abstract

This paper investigates the relation between insider trading and the likelihood of insolvency with a specific focus on the directors’ sale and purchase transactions preceding insolvency. We use a unique dataset on directors’ dealings in 474 non-financial UK firms, of which 117 filed for insolvency, over the period 2000-2010. We show that the directors of insolvent firms increase their purchase transactions significantly as the insolvency approaches. The results also reveal a significant relation between three different measures of insider trading activity and the likelihood of insolvency, which is observed to be positive only during the last six-month trading period. The relation is negative for the earlier trading periods. While the earlier purchase transactions appear to be motivated by superior information held by insiders, the purchase trades closer to the insolvency date are possibly initiated by directors’ motives to influence the market’s perception of the firm in an attempt to avert or delay insolvency.

Keywords: directors’ trades; likelihood of insolvency

JEL Classification: G33, G44

Suggested Citation

Ozkan, Aydin and Poletti Hughes, Jannine and Trzeciakiewicz, Agnieszka, Directors’ Share Dealings and Corporate Insolvencies: Evidence from the UK (July 11, 2014). Ozkan, A., Poletti-Hughes, J. & Trzeciakiewicz, A. (2017), ‘Directors’ share dealings and corporate insolvencies: evidence from the UK’, The European Journal of Finance 23(5), 427–455.. Available at SSRN: https://ssrn.com/abstract=3000338

Aydin Ozkan

Hull University Business School (HUBS) ( email )

Hull, HU6 7RX
United Kingdom

Jannine Poletti Hughes

University of Liverpool - Management School (ULMS) ( email )

Chatham Street
Liverpool, L69 7ZH
United Kingdom

Agnieszka Trzeciakiewicz (Contact Author)

University of Hull - Hull University Business School (HUBS) ( email )

Cottingham Road
Hull, Great Britain HU6 7RX
United Kingdom

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