Open-market stock repurchases, insider trading, and price informativeness

Gow-Cheng Huang (), Kartono Liano () and Ming-Shiun Pan ()
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Gow-Cheng Huang: Tuskegee University
Kartono Liano: Mississippi State University
Ming-Shiun Pan: Shippensburg University

Review of Quantitative Finance and Accounting, 2023, vol. 60, issue 4, No 8, 1495-1513

Abstract: Abstract This study examines insider buying before stock repurchase announcements as an undervaluation signal. We find that firms are more likely to announce a repurchase program when insiders purchase shares, particularly when purchases are made by top executives. Moreover, the effect of insider purchases on announcing a stock repurchase program is more pronounced when stock prices convey more information that is new to managers. We find that insider purchases, particularly purchases by CEOs and CFOs, are positively associated with the market reaction to the share repurchase announcements. Furthermore, investors pay more attention to purchases by CEOs and CFOs when stock prices are less informative. Finally, we find similar results for the relation between insider purchases and post-announcement stock returns.

Keywords: Stock repurchase; Insider trading; Stock price informativeness; Undervaluation signal (search for similar items in EconPapers)
JEL-codes: G14 G35 (search for similar items in EconPapers)
Date: 2023
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DOI: 10.1007/s11156-023-01142-7

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