Changes in Equity Ownership and Changes in the Market Value of the Firm

42 Pages Posted: 28 Jun 2004

See all articles by John J. McConnell

John J. McConnell

Purdue University

Henri Servaes

London Business School; Centre for Economic Policy Research (CEPR)

Karl V. Lins

University of Utah - Department of Finance

Multiple version iconThere are 2 versions of this paper

Date Written: June 2004

Abstract

We study the stock price response to announcements of share purchases by corporate insiders over the period 1994 through 1999. The cross-sectional variability in the response is consistent with a curvilinear relation between firm value and insider ownership, where the value of the firm first increases, then decreases as insider ownership increases. These results are consistent with a causal interpretation of the relationship between insider ownership and firm value. The results of further tests are inconsistent with an interpretation that the firms in our sample are moving toward a new equilibrium ownership level or that insiders are purchasing shares to signal that the firm is undervalued.

Keywords: Executive stock purchases, firm value, insider ownership

JEL Classification: G14, G32

Suggested Citation

McConnell, John J. and Servaes, Henri and Lins, Karl V., Changes in Equity Ownership and Changes in the Market Value of the Firm (June 2004). CEPR Discussion Paper No. 4411. Available at SSRN: https://ssrn.com/abstract=560084

John J. McConnell

Purdue University ( email )

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Henri Servaes (Contact Author)

London Business School ( email )

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HOME PAGE: http://faculty.london.edu/hservaes/

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Karl V. Lins

University of Utah - Department of Finance ( email )

David Eccles School of Business
Salt Lake City, UT 84112
United States
801-585-3171 (Phone)
801-581-7214 (Fax)

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