Changes in Equity Ownership and Changes in the Market Value of the Firm
42 Pages Posted: 28 Jun 2004
Date Written: June 2004
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: Suggested Citation