Insider Trading, Option Exercises and Private Benefits of Control

Peter Cziraki (), Luc Renneboog and Peter de Goeij ()
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Peter Cziraki: PhD candidate, Department of Finance, Tilburg University
Peter de Goeij: Department of Finance, Tilburg University

No 1006, CERS-IE WORKING PAPERS from Institute of Economics, Centre for Economic and Regional Studies

Abstract: We investigate patterns of abnormal stock performance around insider trades and option exercises on the Dutch market. Listed firms in the Netherlands have a long tradition of employing many anti-shareholder mechanisms limiting shareholders rights. Our results imply that insider transactions are more profitable at firms where shareholder rights are not restricted by antishareholder mechanisms. This finding goes against the monitoring hypothesis which states that more shareholder orientation and stronger blockholders would reduce the gains from insider trading. We show robust support for the substitution hypothesis as insiders of firms which effectively curtail shareholder rights enjoy valuable private benefits of control in lieu of engaging in insider trading to exploit their position.

Keywords: insider trading; management stock options; timing by insiders; corporate governance; antishareholder mechanisms; anti-takeover mechanisms (search for similar items in EconPapers)
JEL-codes: G14 G34 M52 (search for similar items in EconPapers)
Pages: 63 pages
Date: 2010-03
New Economics Papers: this item is included in nep-bec and nep-mst
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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