Informational Interaction of Insider Trading and Share Repurchases: A Theoretical and Empirical Analysis
نویسندگان
چکیده
We theoretically and empirically explore the interaction between repurchases and insider trading as signaling devices about private information on firm valuation. Our theory predicts that repurchases, when coupled with insider buying, further the signal of firm undervaluation; insider selling signals the opposite. We find that for the following quarter, repurchases generate 1.2% abnormal returns on average, while repurchase with net insider buying generate 3.7% abnormal returns, an increase of 2.5%. While coupled with insider selling, the abnormal returns are not discernable, implying strong negative insider seller effects. The implications that insider trading augments or attenuates the signal sent by share repurchases.
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