Insider trading and the long-run performance of new security issues

Research output: Contribution to journalArticle

51 Citations (Scopus)

Abstract

This paper uses insider trading around new security issues to provide evidence of managerial timing ability. I show that insider sales increase and purchases decrease prior to issues of information-sensitive securities (convertible debt and equity) by industrial firms. I then examine the relation between insider trading and subsequent stock returns. Although not all equity issues are motivated by overvaluation, those where managers sell prior to the issue are more likely to be. I find that industrial firms with abnormal insider selling underperform in the long run, whereas those with abnormal buying do not. There is no evidence of a relation between abnormal selling and future performance for utility offerings, however. Overall, the evidence is consistent with poor long-term performance being due to overvaluation.

Original languageEnglish (US)
Pages (from-to)25-53
Number of pages29
JournalJournal of Corporate Finance
Volume6
Issue number1
StatePublished - Mar 2000
Externally publishedYes

Fingerprint

Security issues
Long-run performance
Insider trading
Insider
Overvaluation
Convertible debt
Equity
Stock returns
Information security
Equity issues
Long-term performance
Purchase
Managers

Keywords

  • G32
  • Insider trading
  • Long-run stock performance
  • New security issues

ASJC Scopus subject areas

  • Business and International Management
  • Strategy and Management
  • Economics and Econometrics
  • Finance

Cite this

Insider trading and the long-run performance of new security issues. / Kahle, Kathleen M.

In: Journal of Corporate Finance, Vol. 6, No. 1, 03.2000, p. 25-53.

Research output: Contribution to journalArticle

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