Should Insider Trading be Prohibited when Share Repurchases are Allowed?

32 Pages Posted: 3 Mar 2007

See all articles by Andrea M Buffa

Andrea M Buffa

University of Colorado at Boulder - Leeds School of Business

Giovanna Nicodano

University of Turin - Department ESOMAS; Collegio Carlo Alberto; EGCI; Netspar

Multiple version iconThere are 2 versions of this paper

Date Written: February 2007

Abstract

This paper considers share repurchases as the way long-term shareholders preserve their ability to use corporate information for speculative purposes when insider trading regulation is enforced. This use of corporate information increases the adverse selection losses of short-term shareholders. Thus, buy-back programs reduce their incentive to invest in stocks that back the most productive technology, leading to a socially inefficient equilibrium. It follows that insider trading should not be banned when share repurchases are allowed.

Keywords: information trading, share repurchases, liquidity, disclosure

JEL Classification: D82, G35, G38

Suggested Citation

Buffa, Andrea M and Nicodano, Giovanna, Should Insider Trading be Prohibited when Share Repurchases are Allowed? (February 2007). Available at SSRN: https://ssrn.com/abstract=966344 or http://dx.doi.org/10.2139/ssrn.966344

Andrea M Buffa

University of Colorado at Boulder - Leeds School of Business ( email )

Boulder, CO 80309-0419
United States

Giovanna Nicodano (Contact Author)

University of Turin - Department ESOMAS ( email )

Turin, 10134
Italy

HOME PAGE: http://https://www.carloalberto.org/person/giovanna-nicodano/

Collegio Carlo Alberto ( email )

Piazza Arbarello 8
Torino, Torino 10121
Italy
390116705006 (Phone)

HOME PAGE: http://https://www.carloalberto.org/person/giovanna-nicodano

EGCI ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Netspar ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

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