Does Insider Trading around Loan Amendments Predict Stock Returns?

43 Pages Posted: 5 Jun 2023 Last revised: 27 Nov 2023

See all articles by Christian Steiner

Christian Steiner

University of Bern - Institute for Financial Management

Philip Valta

University of Bern

Date Written: November 22, 2023

Abstract

Corporate insiders are better informed about the outcome of loan renegotiations compared to market participants. Their trading in the company's stock around renegotiations is therefore informative about the firm’s financial situation. This paper shows for a large sample of loan amendments that stock returns are 1.35% higher (0.85% lower) following months with both non-routine insider purchases (sales) and loan amendments. This effect is stronger for firms without credit rating, closer to default, and with more illiquid stocks. The findings suggest that insider trades are a channel through which lenders' information about the financial health of the firm affects asset prices.

Keywords: Stock returns, Loan renegotiation, Insider trading, Information complementarity

JEL Classification: G14, G21, G32

Suggested Citation

Steiner, Christian and Valta, Philip, Does Insider Trading around Loan Amendments Predict Stock Returns? (November 22, 2023). Available at SSRN: https://ssrn.com/abstract=4468867 or http://dx.doi.org/10.2139/ssrn.4468867

Christian Steiner

University of Bern - Institute for Financial Management ( email )

Engehaldenstrasse 4
Bern, CH-3012
Switzerland

Philip Valta (Contact Author)

University of Bern ( email )

Engehaldenstrasse 4
Bern, 3012
Switzerland

HOME PAGE: http://https://www.ifm.unibe.ch/about_us/people/prof_dr_valta_philip/

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